Abdel Hakim Belhaj alleges the aircraft taking him to Libya refuelled at the UK territory, and that its administration was complicit in his illegal rendition.
Mr Belhaj is already suing MI6 and the government. Successive governments have denied involvement in such renditions.
But the BBC understands Mr Belhaj's rendition had ministerial approval.
Mr Belhaj believes he was rendered from Bangkok to Libya by the CIA, and claims that during his more than four years in a Libyan prison he was interrogated by agents from countries including Britain and United States.
He has since worked with Nato as one of the leaders of the forces that helped overthrow Col Muammar Gaddafi and is now a senior military commander in the new Libya.
A spokesman on Tuesday denied a report in the Daily Mail that Mr Belhaj had been offered money to try to persuade him to drop legal proceedings against UK officials.
The newspaper had cited MI6 sources as saying Whitehall had been prepared to offer Mr Belhaj more than £1m to drop his case.
Speaking in Tripoli, Mr Belhaj's spokesman, Anis Sharif, said no amount of money would persuade them to drop the case. He said the matter was not about money, but that Mr Belhaj was demanding a full formal apology.
Mr Belhaj's lawyers filed legal papers on 5 April against the Commission for the British Indian Ocean Territory - of which the island of Diego Garcia is a part.
Diego Garcia, in the Chagos archipelago, has been a military base since the island was leased to the US in the 1970s. A commissioner - currently Foreign Office director of overseas territories Colin Roberts - is responsible for making laws in the territory. His representative on the territory is the officer commanding British forces there.
In a statement, law firm Leigh Day & Co claimed the commission was complicit in the rendition of Mr Belhaj and his wife - Fatima Bouchar - as well as their unlawful imprisonment in the territory.
The claim will be brought in the Supreme Court of the British Indian Ocean Territory, it said.
Mr Belhaj's lawyers referred to a US government memo they said had been found at the headquarters of Col Muammar Gaddafi's former intelligence chief - Musa Kusa - and which was headed "Secret Release Libya Only".
They claimed that it provided a schedule for Mr Belhaj's rendition and stated that the flight would land at Diego Garcia early on 9 March 2004, refuel and depart after two hours.
Mr Belhaj says Mr Kusa later told him that British authorities had given permission for the stopover.
Rosa Curling from Leigh Day & Co said: "The evidence we have seen suggests that our clients were sent back to Libya via Diego Garcia, with the UK government's involvement and knowledge.
"Our clients want to know the truth about what happened to them and who was responsible.
"This government needs to be open and transparent about the mistakes of the past, so as to ensure they are not repeated in the future."
Human rights organisation Reprieve said it had asked the government "for months" to say whether Mr Belhaj and his wife had been taken to Libya via Diego Garcia but that it had refused.
"If he did, then ministers right up through David Miliband in 2008 have either been deceived, or lied. All the family want is for the whole truth of their fate, and Britain's role in it, to be known, so these mistakes never occur again."
MI6 involvement 'authorised'
On Monday, BBC correspondent Peter Taylor revealed that MI6's alleged involvement in Mr Belhaj's rendition had been approved by the then Labour government. But he said it was not clear at what level the decision was authorised.
A letter from the senior MI6 officer, Sir Mark Allen, to Musa Kusa, was found last year in the rubble of the intelligence chief's headquarters, which were bombed by Nato.
As well as congratulating the Libyans on the arrival of the "cargo", it points out that "the intelligence was British".
The letter was sent in 2004 when Mr Belhaj was the leader of the Libyan Islamic Fighting Group. MI5 believed the group was close to al-Qaeda and involved in recruiting young Muslims in Britain to fight in Iraq.
Our correspondent said it appeared MI6 had discovered that Mr Belhaj was in Malaysia and about to head for London in the hope of obtaining political asylum.
MI6 informed its foreign intelligence partners, and as a result Mr Belhaj was intercepted in Bangkok, presumably by the CIA, and rendered to Libya.
Our correspondent says the letter suggests MI6 was complicit in Mr Belhaj's illegal rendition and alleged torture in Libya - but that MI6 was not acting unilaterally.
The Metropolitan Police is investigating Mr Belhaj's allegations.
Jack Straw was the Labour Foreign Secretary in 2004 when the rendition took place. In an interview on BBC Radio 4 last year he said: "We were opposed to unlawful rendition. We were opposed to any use of torture or similar methods. Not only did we not agree with it, we were not complicit in it and nor did we turn a blind eye to it."
He added: "No foreign secretary can know all the details of what its intelligence agencies are doing at any one time."
A Foreign Office spokeswoman said: "A police investigation is under way, so we are unable to comment.
"HMG (the government) will co-operate fully with investigations into allegations made by former Libyan detainees about UK involvement in their mistreatment by the Gaddafi regime.
"HMG will hold an independent judge-led inquiry once police investigations have concluded."