The joint operation, which was undertaken as Britain attempted to secure a deal with Col Gaddafi to reopen diplomatic relations, shows how closely Britain’s Secret Intelligence Service was prepared to work with his regime’s spies despite widespread allegations of human rights abuses.
At the time, Britain was encouraging Col Gaddafi to give up plans for weapons of mass destruction. Four months later, the dictator and Tony Blair, then prime minister, struck the 2004 “deal in the desert” which ended Libya’s pariah status.
The cooperation extended to recruiting an agent to infiltrate an al-Qaeda terrorist cell in the Western European city, which cannot be named for security reasons.
The double agent, codenamed Joseph, was closely connected to a senior al-Qaeda commander in Iraq and had been identified as a possible spy by the ESO, Libya’s external intelligence service, on a visit to Tripoli.
MI6 began recruiting the agent without telling its allies in the European country where he lived.
The agency agreed a narrative with the agent and the ESO to fool their allies about when and how the agent had been recruited and the operation launched.
Documents seen by The Sunday Telegraph, which were sent from MI6 headquarters in London to Moussa Koussa, the Libyan intelligence chief, give a detailed outline of this subterfuge, the agent’s recruitment and plans for the operation. The papers were left behind in Tripoli as Col Gaddafi’s regime crumbled.
The plan raises questions about the SIS, MI6’s close links with the Libyan regime and whether it was acting on government orders.
Last week it was disclosed that Jack Straw, the then foreign secretary, is facing legal action over claims he signed off the rendition to Tripoli in March 2004 of an alleged Libyan terrorist leader accused of links to Osama bin Laden, claims that had been previously denied in Parliament.
But now it can be disclosed that secret anti-terrorist operations in Europe involving MI6 and Libyan intelligence began four months earlier with a series of meetings in the UK.
In December 2003, “Joseph” and a Libyan intelligence officer were flown to meetings at British hotels to discuss setting up a mosque to attract North African Islamic extremists.
They hoped to gain “information on terrorist planning”. MI6 paid for one Libyan intelligence officer, who had previously worked under diplomatic cover in the UK, to stay in a five-star central London hotel and smoothed his passage through immigration at Heathrow to “avoid the problems he experienced on his previous visit”.
A secret memo sent to Libyan intelligence in Tripoli details an early meeting with the apparently reluctant new agent in a city in the north of England.
“Our meeting in the UK on this occasion was to explore further with 'Joseph’ just what he might be prepared to do,” it said.
Headed “Greetings from MI6 London” it says: “ 'Joseph’ was nervous. He had had a paranoid walk to the hotel across [UK city] with too much eye contact from passers-by that had unduly unnerved him.
“We reassured him by going over the cover story we had discussed when we met in Tripoli. We would not be seen together in public but, in the unlikely event that anyone saw us in the hotel, I would simply be his business contact. Furthermore, there was no link between the hotel booking and MI6.
“ 'Joseph’ agreed to work with SIS but still required reassurance. A second meeting took place a few days later when MI6 and Libyan officers met 'Joseph’ at one five-star hotel and then travelled in separate taxis to” a second hotel to ensure they were not being watched.
The memo adds: “We told 'Joseph’ that under no circumstances was he to tell the [European intelligence service of country where he lived and was planning to operate] of his involvement with us and the Libyans. We would do this when we were ready.”
The agent had, the note says, already been approached by this Western intelligence service but he was told to “stall his meeting” with them.
A strategy was agreed to keep the other Western intelligence service in the dark about the full extent of their contact with the agent.
It added that MI6’s allies would later be told the agent had been recruited “as a result of our ongoing counter terrorism relationship with ESO, [and we] sought to capitalise on the relationship struck up with 'Joseph’.”
The operation was run behind the backs of Western allies in the chosen city. Critics are likely to question whether it could have backfired, with a terrorist cell launching an attack using the mosque as a base.
The disclosures come in the wake of the accusation that Mr Straw gave the green light to the plan to seize Abdelhakim Belhadj, one of the military commanders who helped to overthrow Gaddafi’s regime last year, and his pregnant wife and put them on a CIA flight.
Secret documents outlining the rendition plan, published by The Sunday Telegraph last February, showed how MI6 tipped off Libya that Mr Belhadj was being held by immigration officials in Malaysia and that the secret CIA flight was scheduled to refuel at an airbase on Diego Garcia, a British sovereign territory in the Indian Ocean.
Once Mr Belhadj was in custody in Libya, Sir Mark Allen, MI6’s then counter terrorism chief, sent a letter to Mr Koussa, saying: “This was the least we could do for you and for Libya to demonstrate the remarkable relationship we have built.”
The evidence contradicted government statements denying British involvements in renditions. Last week Mr Belhadj’s lawyers said they had issued legal proceedings against Colin Roberts, the Foreign Office official responsible for Diego Garcia.