MI5 grants its informants legal cover to participate in crimes that may extend to murder, torture and sexual assaults, a tribunal has heard.

The policy, in existence since the early 1990s, is likely to have enabled the Security Service to conceal wide ranging illegal activity, Ben Jaffey QC, representing an alliance of human rights group, told the investigatory powers tribunal (IPT) on Thursday.

The policy was so secret that even judicial oversight of the practice, introduced in 2012, was not initially acknowledged. Sir Mark Waller, a retired judge appointed to oversee the policy, was instructed by the prime minister at the time, David Cameron, not to comment on its legality.

Known within the intelligence services as “the third direction”, a letter from Cameron to Waller dated 27 November 2012 said his “oversight would not provide endorsement of the legality of the policy”.

Some details of the policy were also disclosed on Thursday during the hearing. A heavily redacted copy of a three-page MI5 document, entitled Guidelines on the use of agents who participate in criminality (official guidance), was released.

The document shows that MI5 sought to give its agents even greater freedom to commit criminal offences than that usually proffered to police informers. “The service has established its own procedure for authorising the use of agents participating in crime,” it states.