Up close, Christodoulos Xiros does not come across as a menacing man – in many ways he still resembles the soft-spoken craftsman he once was. But this weekend, barely three weeks after absconding from the high-security Korydallos prison in Athens, the dark-eyed 56-year-old, a key member of the defunct 17 November terror group, has struck fear into the hearts of many across crisis-hit Greece.

In the space of five days, panic-stricken authorities have launched the biggest manhunt in modern times, placed a €4m bounty on his head – dead or alive – and thrown a security cordon around the capital not seen since the 2004 Olympics.

On Friday, as European justice ministers gathered in the country that currently holds the EU's rotating presidency, there were sharpshooters on the roofs, sniffer dogs roaming the streets and more than 2,000 riot police outside government offices and hotels.

"I am worried that soon there will be an attack," said former foreign minister Dora Bakoyannis, giving voice to the fears stalking Greece after Xiros failed to report to authorities while visiting his family during a nine-day leave from prison earlier this month.

It was 15 days before the self-described "free member of 17 November" re-emerged, with a video message vowing a return to armed action. "It's time for battle," Xiros said against a background of images depicting resistance fighters and a second world war communist hero. "I have decided to thunder the guerrilla shotgun against those who stole our lives and sold our dreams for profit."

The event has been a huge embarrassment even for a government already dealing with a society at boiling point and an economy still ravaged by recession and debt almost four years after first being bailed out.

Bakoyannis – whose first husband, a conservative MP, was gunned down by the 17 November organisation in 1989 – was convinced, along with most Greek officials, that the scourge of terrorism had been eradicated with the disbandment of the guerrilla gang in 2002.

Xiros, who was serving six life sentences for a string of deadly attacks and bombings, was among the 15 convicted members of 17 November whose incarceration was meant to have ended the activities of an organisation that, long before the appearance of al-Qaida, was at the top of America's most wanted list.

Over a period of 27 years, the seemingly impregnable Marxist-Leninist group killed 23 people, including CIA station chief Richard Welch, its first victim, and British defence attache Brigadier Stephen Saunders, assassinated as he drove to work in June 2000.

In the commotion that followed Xiros's escape, Alexandros Giotopoulos, the French-born academic believed to have founded the gang, and Dimitris Koufondinas, its chief hitman, have declared, in letters written from prison, that "17 November is dead". But while security officials agree – pointing out that Greeks' tolerance for its crusade against capitalist culture and its crude anti-Americanism has long since evaporated – fears abound that the country's austerity-ravaged society and fragile political climate provide fertile ground for a resurgence of political violence.

Anger in Washington has added to the pressure on prime minister Antonis Samaras's shaky government to capture Xiros. The US State Department still regards 17 November as a terrorist organisation.

Western diplomats worry that Xiros will try to forge a leading role among a new generation of guerrillas linked to a criminal underworld that is thought to be well-armed and careless about who gets killed. During his 11-year stint in prison he is known to have fraternised with members of the militant group Conspiracy of the Cells of Fire, best-known for the parcel bombs it dispatched to the offices of EU leaders, including that of the German chancellor Angela Merkel, at the onset of the Greek crisis.

In his video message, Xiros issued a rallying cry for anarchists and leftists to unite in revolt against the "scum" who had brought Greece to the brink of ruin. "What is dangerous about him is that he has a hyper-acute sense of justice and a pathological sense of responsibility," said the former US diplomat Brady Kiesling, who has been studying Greek far-left violence for a forthcoming book. "And that is what makes a terrorist."

In the aftermath of his disappearance, speculation was rife that Xiros, the son of a fundamentalist Orthodox priest, had decided to abscond because he had fallen in love with a woman he met on a previous release from prison. But as police swooped on homes in Athens, rounding up and arresting figures on the anti-establishment left, rumour was also rife that a terrorist attack was imminent.

"Although we do not know the circumstances under which it was made, for a large part of the revolutionary community he disgraced himself by signing a police confession that he belonged to 17 November," said Kiesling. "I think he is now desperately trying to place himself in a noble position for a handful of people he cares about."

Xiros's ability to elude the authorities has inevitably also focused attention on a Greek state apparatus that has all but collapsed. Anti-terrorist units, like the judiciary, police, prison officers and politicians, have been sapped of morale by the country's ongoing crisis.

He is the second convicted terrorist to go underground: Nikos Maziotis – the leader of another disbanded guerilla group, Revolutionary Struggle – absconded on a similar leave of absence from prison last year. Maziotis was believed to be behind a shooting attack on the official residence of the German ambassador to Athens in December. The Greek justice minister announced on Friday that the authorities would re-examine the release rights of those serving time for terrorism offences. "They should never have been given such permits," the minister said.

Until now prisoners, including most of 17 November, have been granted temporary release after serving eight years of their sentences. Xiros, to the dismay of authorities in Washington, has secured several such exits since 2011.

"Last year, he was the guest of honour when he came to baptise the kid of the guy who now rents his workspace," Ilias Leriadis, the deputy mayor on the island of Ikaria, Xiros's ancestral home, told the Observer. "This is a traditionally leftist island, and although we don't support his call for arms, and leftwing parties have strongly opposed it, he has a lot of support among friends and family here."