The Home Secretary is to appeal "in the strongest possible terms" against a landmark High Court ruling given today which paves the way for two terror suspects to sue for damages.
In the first cases of their kind, a judge quashed control orders imposed on AF and AE, who cannot be named for legal reasons.
The orders date back to 2006 and initially included 18-hour curfews, as well as other restrictions on who the men could contact.
Neither man has stood trial.
AF was born in 1981 in Derby and has dual Libyan and British nationality. He was subjected to control orders because of alleged links with Islamic terrorists.
AE was described in court as imam to the Iraqi community in an unnamed town in the north of England.
It was alleged by the security service there was evidence that he had received terrorist training and taken part in terrorist activities.
Last June, the House of Lords ruled the control orders against both men were unfair because they were largely based on secret intelligence kept from them.
Nine Law Lords unanimously ruled they were entitled to sufficient information about the secret accusations to instruct lawyers to defend them.
Following the ruling, Home Secretary Alan Johnson revoked the orders against both AF and AE, and did not seek to renew them because it would have involved disclosing hitherto secret intelligence material.
Yesterday, despite the Home Secretary's opposition, the High Court said the orders must not only be revoked but quashed with retrospective effect.
The judge's decision effectively gives the go-ahead for damages claims for loss of liberty and alleged human rights violations dating back to 2006, when the orders were first imposed.
But the judge warned the claims were not bound to succeed, and the level of compensation payable was "low".
Mohammed Ayub, of Chambers solicitors, Bradford, who was acting for AE, described the judge's decision as a "very important step in AE's claim for damages and a victory for common sense".
Mr Ayub said AE was subjected to a series of severe control orders between May 2006 and September 2009.
"It cannot be right to impose a control order on a person for three and a half years and, at the end of that period, without any evidence having been disclosed to AE, to say 'We have decided to revoke the control order and you have no effective remedy for the wrong that we have done to you'.
"We look forward to the next stage of AE's claim for damages which will follow later this year."
Later the Home Secretary said: "I'm very disappointed by this judgment and will be appealing in the strongest possible terms.
"The Government argued strongly that these control orders were properly made for the purpose of protecting the public and that they should not be retrospectively quashed.
"In fact the courts previously agreed that they were both properly imposed and necessary.
"We will resist strongly paying damages to former subjects of control orders wherever possible, and to minimise the level of compensation where we have no choice but to pay."
Shami Chakrabarti, director of Liberty, said: "How long before the Government realises that the control order regime leaves Britain no safer and a lot less free?
"An order to wear an electronic tag and stay at home would be no deterrent to a would-be suicide bomber.
"The 'controlees' who have completely disappeared demonstrate the nonsense of a system which simultaneously allows wholly innocent people to be labelled terrorists and permanently punished without trial."
Sara MacNeice, Amnesty International's UK terrorism and security campaigner, said: "When people's liberty has been significantly restricted for years, on the basis of secret evidence, their rights have been abused and they are entitled to seek redress.
"Today's ruling is yet another nail in the coffin of the control order regime - the Government should now scrap Control Orders and adopt a system that provides security without trampling over people's human rights."