William Hague has been accused of sabotaging the inquest into the death of the Russian Alexander Litvinenko, after a coroner upheld his application to keep crucial evidence secret.

The coroner, Sir Robert Owen, reluctantly agreed on Friday to the foreign secretary's request to hide material which suggested Russia's state agencies were behind Litvinenko's cold war-style killing. Owen also agreed to exclude other documents that examined whether UK officials could have done more to prevent the murder.

In his ruling, Owen said the inquest might now result in an "incomplete, misleading and unfair" verdict. The coroner said he was considering inviting the government to hold a public inquiry instead, which would hear the sensitive evidence buried by Hague.

Litvinenko died in November 2006 after two former KGB agents – Andrei Lugovoi and Dmitry Kovtun – allegedly slipped radioactive polonium into his tea at London's Millennium hotel. The Kremlin has refused to extradite the two spies, who have both vigorously denied Litvinenko's murder.

Relations between London and Moscow have recently thawed, with David Cameron last week warmly praising Vladimir Putin following discussions on Syria. The prime minister and the Russian president bonded last summer at London's Olympics, when they watched the judo together.

Litvinenko's widow Marina said she was disappointed with the coroner's ruling. Her lawyer, Ben Emmerson QC, had previously accused Hague of attempting to stage a cover-up and of placing Britain's trade interests with Moscow ahead of justice. Both Hague and Cameron were shamelessly "dancing to the Russian tarantella", he told a pre-inquest hearing.

Speaking on Friday, Litvinenko's close friend Alex Goldfarb said it was now apparent that Hague was indeed hiding evidence in the case in order to appease the Kremlin. "It's obvious: the government is trying to protect its relations with Putin. They have their reasons. They want Russian co-operation and investment. But in this case it's being done at the expense of justice."

Goldfarb said it was practically meaningless to soldier on with an inquest if it could no longer examine the role of Russia's spy agencies, nor damning evidence indicating that the polonium used in the murder plot came from Russia. He added: "They [Hague and Cameron] appear more concerned about chemical weapons in Syria than polonium spread around the streets of London."

In his ruling, the coroner said the secret evidence held by the British government "does establish a prima facie case as to the culpability of the Russian state in Mr Litvinenko's death". This evidence will now not be revealed. Owen made clear his unhappiness with this situation.

Litvinenko's widow and other interested parties now have 14 days to challenge the coroner's decision. But they have little chance of success – not least because they have been kept in the dark as to what the secret evidence includes. Hague's lawyers have shown "samples" of the controversial material in closed-door hearings held over several days.

National newspapers and the BBC have joined forces to oppose Hague's secrecy application and on Friday expressed their dismay at the ruling. Jan Clements, a lawyer acting for the Guardian and other media groups, said: "It would mark a low point in open justice if evidence concerning the responsibility for and preventability of the killing of Litvinenko were only heard in a secret hearing."

Earlier, Alex Bailin QC, the lawyer acting for the media, said "the public and media are faced with a situation where a public inquest into a death … may have large amounts of highly relevant evidence excluded from consideration by the inquest. Such a prospect is deeply troubling."

Hague applied for a public interest immunity certificate (PII) on 7 February. His lawyer argued that if sensitive evidence were revealed it might damage the UK's "national security and/or international relations". Critics complained this wording was excessively vague. The coroner did eventually reject a part of Hague's PII claim, but the subject was redacted and is shrouded in mystery.

The government has consistently refused to say what evidence it wants to hide. But it will almost certainly include revelations made at a hearing in December that at the time of his death Litvinenko was working for the British secret services.

Litvinenko was also a "paid agent" of the Spanish security services. MI6 encouraged him to supply information to the Spanish about Russian mafia activities, and alleged links between top organised criminals and the Kremlin, the hearing heard.

In 2006, a few months before his death, Litvinenko travelled to Spain and met his MI6 handler, "Martin". The fact Litvinenko – a former Russian spy – was working for MI6 raises embarrassing questions as to whether British intelligence should have done more to protect him. Litvinenko had a dedicated phone to contact "Martin" and received regular payments to his bank account from MI6 and Madrid, it emerged in December.