Ministers and military top brass have announced that they will meet next week to decide whether extra troops drafted in to guard the Olympics should be paid a bonus amid rising anger among politicians and the armed forces over the G4S scandal.
The Ministry of Defence confirmed the talks as pressure grew to compensate the soldiers, many of whom have recently returned from Afghanistan and have had to cancel holidays or honeymoons.
Labour is also demanding that the Home Secretary, Theresa May, make a statement in the Commons today about the debacle and say when she knew that the private security company G4S would be unable to fulfil its contract to provide Games security.
Soldiers are said to be furious about the deployment, which comes days after being told they face redundancies. Many will have to cancel holidays or will return to duty soon after returning from Afghanistan.
While the MoD has said troops "won't be out of pocket", a spokesman confirmed that they would be expected to claim on their own insurance for lost holidays.
"Military personnel can be deployed anywhere at short notice, such as in Libya, and so are encouraged to take out holiday insurance," the spokesman said.
The 3,500 soldiers, from three separate brigades, were in the third line of contingency planning put in place by the MoD and it was thought very unlikely that they would become involved in Olympic security.
They were told they could go ahead and book their holidays, but were also instructed to take out insurance in case there was a last-minute emergency. However, it is believed that some had not done this.
A sergeant with one of the brigades affected, who has served two tours in Helmand province, said: "I am one of the more fortunate ones. At the insistence of the missus we have got insurance although I haven't looked at the fine print of what it covers. But I do have mates who certainly did not get comprehensive coverage.
"This has come as a bit of a shock. We were told it was almost certain that we would not get involved in the Olympics. We find the stupidity of G4S quite staggering. Many of us had planned to spend some quality time with our partners and also our kids, many of whom were growing up while we were in Afghanistan, and that has now gone for a burton."
The Conservative MP Patrick Mercer, whose former regiment, the Second Battalion The Mercians, has been drafted in to guard Wimbledon, has suggested the 3,500 troops be paid the operational allowance of £29 a day they would receive on duty in Afghanistan, and that G4S should foot the bill. "It would be an extremely nice gesture," he said.
Labour's deputy leader, Harriet Harman, said yesterday those drafted in should receive a £500 bonus.
Kevan Jones, the shadow armed forces minister, said: "Bus drivers and tube drivers have been given an Olympic bonus but our quiet, diligent forces are being given the bare minimum. Many are cancelling well-earned summer leave with their families to cover for G4S and ministers' mistakes. Ministers need to make sure they get a bonus in recognition of their contribution."
Major General Julian Thompson, a Royal Marines commander who served in the Falklands, said: "I feel extremely angry that they've been called in because of a cock-up. I've been told that some soldiers have paid for honeymoons and can't go. I'm all for G4S paying a bonus as well. How one works out what they're paid is open for discussion."
G4S, which made profits of £531m last year, has said it will reimburse all the costs of the extra mobilisation, which it puts at £35-£50m. The company's chairman, Nick Buckles, pictured, is due to appear before the Commons Home Affairs Select Committee tomorrow.
Labour is demanding that Theresa May address the debacle in the Commons today