Ronald Fiddler, 50, a Muslim convert from Manchester, is reported to have been paid the money after being detained for two years at the US base in Guantanamo Bay. He was released and allowed to return to the UK in 2004, and was never charged with any offence.
But Fiddler, known by a number of aliases including Jamal al-Harith and Abu Zakariya al-Britani, was named as the perpetrator of a suicide car bomb attack on Iraqi troops advancing towards Mosul on Monday.
A Downing Street spokesman repeatedly refused to answer questions from journalists on an “intelligence matter”, including over Mrs May’s role overseeing monitoring and compensation for former detainees while she was Home Secretary.
The spokesman claimed there was “no independent confirmation” that the man pictured in jihadist propaganda material was Fiddler, and would not confirm whether the government knew his whereabouts or if he was alive or dead.
However, last night Fiddler’s family appeared to confirm reports about the suicide bombing, expressing “sorrow and distress” in a statement. They denied he was paid £1m and said he was “utterly changed” by his detention.
Lord Carlile, the independent review of terrorism legislation from 2001 to 2011, yesterday condemned the compensation payment, saying of Fiddler: “Plainly he was a terrorist”.
The payment was made in order to prevent UK intelligence documents being revealed in court if Fiddler had taken the government to court, Lord Carlile said, despite a similar suit against the US government being thrown out without the disclosure of any classified information.
In a rare public justification of his actions in office, former Prime Minister Tony Blair released a statement condemning coverage of the case in the Daily Mail.
Mr Blair accused the newspaper of “utter hypocrisy” after having mounted a “massive media campaign” for the release of Britons detained at Guantanamo.
He said compensation for Mr Fiddler over UK involvement in his detention and mistreatment at Guantanamo was only agreed after 2010 under the Conservative-led coalition government.
And former Labour Home Secretary David Blunkett yesterday suggested monitoring of released Guantanamo detainees may have been discontinued after 2010. Fiddler is believed to have travelled to Syria in 2014.
Lord Blunkett called for £20m worth of compensation paid to 16 British detainees at Guantanamo to be reviewed.