In his first major television interview since the first revelations from Mr Shayler appeared in the Mail on Sunday, he told last night's BBC Newsnight programme that MI5 was far too bureaucratic to be able to deal properly with the IRA threat.
He said that, for example, if a warrant were needed, it would have to go through six or seven service bureaucrats before being signed by the Home Secretary. Far too much time was spent writing drafts preventing officers from actively fighting the terrorist threat.
He said: "There was a real chance in 1993 when MI5 took over primacy for fighting terrorism on the mainland that they could have really finished off [the IRA] campaign. The IRA were on the ropes and if [MI5] had been clued up, they could have finished them off."
Mr Shayler also said that all politicians were "assessed" before the 1992 election to see whether they posed a threat to the British state "if they were introduced into a government".
Personal files were opened on people such as Jack Straw, the Home Secretary, and Peter Mandelson but also on others such as Tam Dalyell, the backbench MP because of his belief that the Libyans did not carry out the Lockerbie bombing. Ted Heath, the former Tory prime minister also had a file because of his support for "rapprochement" with the Communist Eastern bloc.
Although Mr Mandelson, now Minister Without Portfolio, has denied joining the Communist Party - dismissing the suggestion that MI5 took an interest in him for that reason as "a pure smear" - Mr Shayler insisted that there was a copy of his membership card in his file "which was fairly conclusive proof that he was a member".
Files were divided into a bureaucratic system of green, amber and red. Red files were essentially dormant, but Mr Mandelson had remained amber until just before the 1992 election. IRA members' files would remain green until they died, Mr Shayler said. The filing system is in abeyance because the counter- subversion section was closed last year, but the files have not been destroyed.
Mr Straw has demanded an urgent report from MI5. The Home Secretary is to meet the director of the security service, Stephen Lander "soon", in the light of Mr Shayler's claims. Mr Shayler also said that Mr Straw himself had been regarded as a "Communist sympathiser" purely because he was president of the National Union of Students.
Last night, a Home Office spokeswoman said: "The Home Secretary will be receiving a report from the director-general, Stephen Lander, over the issues raised at the weekend as soon as possible. Consideration is being given to what if any action should be taken."
The Home Office declined to go into details about the issues which would be covered in Mr Lander's report, or spell out what action it might be considering. It is likely, however, that MI5 will at least be considering whether to ask the police to investigate whether Mr Shayler, 31, has committed an offence under the Official Secrets Act. Ultimately, it would be for the Attorney General, John Morris,to sanction any prosecution, should one be deemed appropriate.
Mr Straw is also likely to want to hear the security service's justification for carrying out surveillance on the targets identified by Mr Shayler, who also said MI5 kept files on John Lennon and "subversive" bands like the Sex Pistols and UB40.
The former officer has spoken to The Independent from an undisclosed location in Europe, and has said that he plans to stay on the run.
He said he believed he could not be extradited, but added: "I have to accept that I would be a fugitive. But no other country has a law like the Official Secrets Act so I don't think any court would allow me to be sent back to Britain."