Germany's equivalent of MI5 has found itself at the centre of a deepening intelligence service scandal after it was confirmed yesterday that its agents had destroyed files containing vital information about a neo-Nazi terrorist gang hours before the material was due to be handed to federal prosecutors.

The case concerns the National Socialist Underground, a neo-Nazi group responsible for Germany's worst acts of far-right violence since the Second World War. Its members murdered a policewoman, shot dead nine immigrants, mounted two bomb attacks and robbed 14 banks to finance their operations.

Police discovered the bodies of the gang's two ringleaders, Uwe Mundlos and Uwe Böhnhardt, in a burned-out caravan in eastern Germany last November. Investigators established that they had committed suicide after robbing a bank. A third member of the gang, Beate Zschäpe, was caught and arrested. She is still being questioned.

Details of the scandal were leaked to the German news agency DPA yesterday, prompting German Interior Ministry officials to admit that domestic intelligence service agents, who had been keeping the gang under surveillance for more than a decade, had destroyed files containing information about the group.

They revealed to a parliamentary inquiry that the agents had shredded the documents on November 11 – the day they were due to be handed to Germany's Federal Prosecutor, who had taken over the investigation.

Jörg Ziercke, the President of Germany's Federal Criminal Bureau, also admitted to the inquiry that his office "had failed" over the neo-Nazi investigation.

The revelations increased suspicions that neo-Nazi cell members were in the pay of German intelligence. In the past, the organisation has made no secret of the fact that it uses secret service "moles" to infiltrate the country's far-right groups. However, keeping neo-Nazis on the secret service payroll would amount to active collaboration and imply that members of the intelligence service supported their criminal acts. The intelligence services have admitted to a parliamentary inquiry that both domestic intelligence and German military intelligence used so-called "moles" to infiltrate the neo-Nazi organisations frequented by NSU ringleaders Mundlos and Böhnhardt.

Shocked German MPs yesterday insisted that the Interior Minister, Hans-Peter Friedrich, open a thorough investigation into the disclosures and bring those responsible to account.

"The whole affair is intolerable and there must be consequences," said Eva Högl, a Social Democrat MP. Clemens Binniger, a conservative MP attending the inquiry, said the revelations made" all theories possible".

The series of murders carried out by the National Socialist Underground began over a decade ago. The group singled out immigrant street vendors as their targets and specialised in shooting their victims at point-blank range in the head without warning.

The killings were mostly carried out with a Czech-made Ceska pistol but remained unsolved for years. German police put them down to immigrant gang violence and did not suspect neo-Nazis were involved.