British Army agents set up a loyalist terrorist leader for assassination to help their own informer penetrate the highest levels of the Ulster Defence Association (UDA).
A former member of the Army's clandestine Force Research Unit (FRU) has told The Observer that Jimmy Craig, a UDA racketeer, was sacrificed in order to improve ex-soldier Brian Nelson's standing inside the Protestant terror group.
Craig was shot dead in October 1988. The UDA said he was colluding with the IRA.
However, the former FRU soldier who operated undercover in Northern Ireland says his fate was sealed by a leaked RUC video, showing the UDA leader meeting with a senior Belfast IRA man in a Catholic bar.
The ex-soldier claims that officers at the FRU's base in Army headquarters at Thiepval barracks, Lisburn, gave the video to Nelson, who had infiltrated the UDA.
The ex-FRU soldier's allegations are to be given to Sir John Stevens, the former deputy chief constable of Cambridgeshire, in charge of investigating claims of collusion between the British Army and loyalist terrorists.
Speaking from a secret location in Europe, the former undercover soldier said: 'The RUC's anti-terrorist surveillance unit, E4A, had filmed a meeting between Craig and this Provo from Unity Flats in the bar in the Markets area.
'The video was later taken to Brian Nelson who was being run by agents I worked with in Lisburn at the time. Nelson then passed the video on to the UDA's leadership. This was the last piece of evidence to prove that Craig was a traitor... and it helped get him killed.'
The soldier said allowing Craig to be killed, so that Nelson could impress fellow UDA leaders and rise through the ranks, was illegal.
'The security services allowed Craig to be murdered in order to advance their own informer. They colluded in a criminal act. That is something that I feel in a democracy must be exposed.'
Craig was shot dead by the UDA's Special Investigations Unit because it said he had set up fellow loyalists for assassination, including its supreme commander, John McMichael, killed by an IRA bomb in December 1987.
Shortly after the Craig killing, the UDA released a statement. It mentioned a 'tape' which proved he was working with the enemy.
Until his death, Craig was the UDA's chief fundraiser, mainly through extortion rackets on building sites. Craig regularly met members of the Provisional and Official IRA to carve up control of security on building sites across Belfast in the Eighties. Builders were forced to pay both groups and employ their members - or risk being beaten up or killed.
Craig, who loved the good life and took holidays in southern Spain with money he made from protection, told fellow inmates at Belfast's Crumlin Road jail how he kept discipline in the UDA. 'I've got this big fucking hammer and I've told them that, if anybody gives me trouble, I'll break their fucking fingers.'
The Craig affair will only heighten demands for a public inquiry into the clandestine career of Brian Nelson. The unit that ran Nelson, the FRU, one of the army's most secretive, has won more gallantry awards than any other unit in Northern Ireland. However, the FRU has faced controversy over its handling of Nelson, who carried out terrorist acts while working for the state, including the conspiracy to murder Belfast solicitor Pat Finucane and the nationalist Gerard Slane.