Britain’s role in the seizure and alleged torture of a Libyan opponent of the former dictator Muammar Gaddafi looks set to be exposed after a court decision that will set alarm bells ringing in the intelligence services.

The high court has said that it will hear an application for a judicial review of the Crown Prosecution Service’s decision not to charge MI6’s former counterterrorism director, Sir Mark Allen, over the abduction of Abdel Hakim Belhaj and his pregnant wife who were transferred to Libya in a joint CIA-MI6 operation in 2004. The decision means Belhaj’s legal team can apply for confidential documents about MI6’s part in the rendition of Belhaj to be shown to the court, a move that could embarrass the CPS. The application, filed on behalf of Belhaj and his wife by the human rights group, Reprieve, and the law firm Leigh Day alleged that while he and another man were in Libyan detention, “the UK security and intelligence services sought and obtained access to them and interrogated them, in circumstances where it was obvious that they were being held incommunicado, without any judicial supervision, and were subject to mistreatment and torture”.

After the allegations surfaced, the Metropolitan police launched Operation Lydd to investigate whether UK intelligence officials had broken the law.

The Met submitted a 28,000-page dossier to the CPS, which, according to some who have seen it, suggested that there were grounds for Allen to be charged. Last year the mayor of London, Sadiq Khan, said: “The Metropolitan police submitted a comprehensive file of evidence to the Crown Prosecution Service seeking to demonstrate that the conduct of a British official amounted to misconduct in public office.”

The CPS decided last June against prosecution.

Sue Hemming, head of the CPS’s special crime and counterterrorism division, said at the time: “Following a thorough investigation, the CPS has decided that there is insufficient evidence to charge the suspect with any criminal offence.”

Last autumn Belhaj announced his intention to challenge how the CPS had reached this decision. After consideration of his challenge, Mr Justice Jeremy Baker has now said that it should be listed in court as a “rolled-up hearing”, which means the case will be fast-tracked if approved. In a letter to Reprieve, Baker said a case management hearing will be established “so that any complexities surrounding the admissibility of evidence and a timetable can be set.”

According to the statements of grounds in the Reprieve claim, “the extent of UK involvement in the operation became clear on the collapse of the Gaddafi regime, from documents discovered in Libya”. They note that on 18 March 2004, Allen sent a letter to his Libyan counterpart, Moussa Koussa, congratulating him on the successful rendition of Belhaj. A week later then prime minister Tony Blair famously met Gaddafi in his tent in Libya, a meeting at which Allen was present.

In his letter to Koussa, Allen said: “I congratulate you on the safe arrival of [Belhaj]. This was the least we could do for you and for Libya to demonstrate the remarkable relationship we have built over recent years …

“Amusingly, we got a request from the Americans to channel requests for information from [Belhaj]through the Americans. I have no intention of doing any such thing. The intelligence about [Belhaj] was British.”

Even if permission for judicial review is rejected, the CPS will be forced to disclose key documents if Belhaj’s lawyers apply for them. They could be used by Belhaj’s legal team bringing a separate civil action against the government.

The documents may also shine light on the extent, if any, to which Allen’s political masters were aware of his alleged involvement in the operation. Jack Straw, who was foreign secretary, has always firmly denied any role in the affair. Allen, too, denies wrongdoing.

“The CPS decision not to charge anyone for these abductions never made sense,” said Cori Crider, a Reprieve lawyer. “They looked away from a mountain of evidence and just plain got the law wrong – Mr Belhaj and his wife felt the CPS were straining to excuse the suspect, MI6’s Sir Mark Allen, at any price. We’re delighted the CPS’s decision will be tested in court. Britain’s security services cannot be above the law.”