Britain's most senior police officer has been compelled to apologise to a group of protesters after admitting that one of his officers used excessive force when he unlawfully sprayed CS gas into their faces at close range.

Sir Bernard Hogan-Howe, the commissioner of the Metropolitan police, admitted that the CS spray caused the protesters intense pain, fear and panic.

Hogan-Howe also apologised for preventing the campaigners against tax avoidance from "exercising their fundamental right to protest". The Met twice failed to properly investigate the use of the CS spray in a crowded area.

The commissioner issued the apology, coupled with compensation, after the six protesters sued the Met over use of CS spray during a UK Uncut protest in Oxford Street, London. The protesters' lawyer, Lochlinn Parker of Deighton Pierce Glynn, criticised the force for taking more than three years to concede that "this shameful episode of excessive policing should never have happened".

In January 2011, the six took part in a protest against Boots over tax avoidance. During the protest police officers arrested a woman after she pushed a leaflet through a gap in the closed door of a Boots store. They took her to an alley as protesters followed shouting "shame on you" at the officers, when one of them suddenly sprayed them with CS.

Mike Firth, one of the six, has described how he fell to the ground blinded and could not breathe. "I was in shock, I didn't know what had happened … It was really painful and no amount of coughing or crying could get rid of it." He said that he later felt "really depressed" that "something so peaceful and happy had turned into something so ridiculously nightmarish".

Another protester, Stephen Reid, heard screaming before his eyes started to burn. Later that day, he gave his girlfriend "a hug as I told her what had happened and her cheek started burning".

Mike Firth after being sprayed in face with CS gas outside Boots in January 2011. Photograph: Donnacha DeLong

The officer, PC James Kiddie, had said that he had used the CS spray to drive back the protesters as he feared for the safety of himself and other officers: "The crowd surge was terrifying and we were heavily outnumbered."

However, an investigation by the police watchdog, the Independent Police Complaints Commission, found that apart from some protesters pulling at the arrested woman, there was no evidence from footage of the incident that "any of the protesters had attempted to physically attack any of the officers".

The watchdog ruled that Kiddie had broken police rules that recommend that CS should not be sprayed within one metre of targets as it can damage the eyes. The IPCC also found that the police failed to monitor the health of the protesters after they had been sprayed, as they were required to do under police rules.

In settling the legal action, Hogan-Howe said he apologised to the protesters for the actions of Kiddie and for the delay in the resolution of their complaints. "We accept that PC Kiddie's actions amount to excessive force and as such were unnecessary and unlawful. We also acknowledge that his use of CS spray caused you, variously, intense pain, momentary loss of sight, and feelings of panic and fear."

He added that in March, an internal disciplinary hearing had found that Kiddie had used unlawful force against the protesters. Hogan-Howe apologised that this verdict had only been reached after the protesters had lodged their complaint with the IPCC after it had been dismissed by two internal Met inquiries.

The commissioner admitted to the protesters that this "delay … exacerbated your distress arising from these events. We acknowledge … that these events should never have happened."

Parker added: "The Met, and other police forces, will only be trusted by protesters if they are transparent and accountable, and we hope that this case will be part of the process that changes how the Met reacts when things go wrong."

A Met spokesman confirmed that the force had "agreed a claim for damages from six members of the public in connection with the use of CS spray by an officer, PC James Kiddie, at a demonstration in Oxford Street in January 2011. A letter of apology from the commissioner will be sent to each of the claimants."