British forces in Iraq handed over two terror suspects to the US who were then flown to Afghanistan for interrogation, the Defence Secretary admitted today.
In a statement to MPs that will reignite the row over "extraordinary rendition", John Hutton said officials had been aware of the incident in 2004.
The case was also featured in papers that went in front of two Cabinet ministers, who have denied all knowledge of it.
The disclosures contradict Government claims that Britain has never been complicit with extraordinary rendition, whereby detainees are transferred to states where torture is legal.
The US has now told Britain it is not "possible or desirable" to move the individuals, who are still in Afghanistan, either back to Iraq or their home countries.
The incident came to light after a lengthy review of detentions in Iraq and Afghanistan which has thrown up a series of other errors in details previously released to Parliament.
"The individuals transferred to Afghanistan are members of Lashkar e Tayyiba, a proscribed organisation with links to al Qaida," Mr Hutton said.
"The US Government has explained to us that they were moved to Afghanistan because of a lack of relevant linguists necessary to interrogate them effectively in Iraq.
"The US has categorised them as unlawful enemy combatants and continues to review their status on a regular basis.
"We have been assured that the detainees are held in a humane, safe and secure environment meeting international standards consistent with cultural and religious norms."
Mr Hutton said "inaccurate" information had subsequently been given to the Commons about UK-held detainees, based on the information available to ministers at the time.
But he added: "This review has established that officials were aware of this transfer in 2004.
"It has also shown that brief references to this case were included in lengthy papers that went to the then Foreign Secretary (Jack Straw) and Home Secretary (Charles Clarke) in April 2006.
"It is clear that the context did not highlight its significance at that point to the ministers concerned."
He went on: "In retrospect, it is clear to me that the transfer to Afghanistan of these two individuals should have been questioned at the time."