Lord Carlile QC has been stood down by the government as independent reviewer of the Prevent programme following a legal challenge over his appointment.

In a letter to Rights Watch UK, which launched the legal action against the Home Office earlier this year, the government’s legal advisers said they had “full confidence” in his work but confirmed his role “has been concluded”.

Terms of reference for the review of Prevent are also being reconsidered by the Home Office, the letter stated.

The decision to reassess the review of the controversial Prevent programme is a victory for Rights Watch UK. It objected to Lord Carlile because in the past he has declared his strong support for the programme, which is aimed at combating radicalisation leading to terrorism. It has become a toxic brand for many within Muslim communities, with some viewing it as a state tool for spying on them.

Carlile, a former Liberal Democrat MP, was the independent reviewer of terrorism legislation from 2001 until 2011.

Welcoming the decision, Yasmine Ahmed, the executive director of Rights Watch UK, said: “This is an outstanding victory for those who are committed to seeing a genuine and robust review of the Prevent strategy. Our concerns with Lord Carlile have always been clear and well-evidenced. His long-standing objection to any kind of criticism or overhaul of Prevent is no secret … This meant the review lacked buy-in and cooperation from those it most needed to engage.

“It is important that the home secretary now takes the time to ensure mistakes which led to Lord Carlile’s appointment are not repeated. We reiterate our call for a public appointments process to be undertaken, in line with the cabinet manual guidelines. That process must be open and transparent. It is critical that the next reviewer is genuinely independent and has the faith of those impacted by it. There are established processes to help achieve that outcome, and they should be adhered to.

“His appointment was a serious misjudgment by the secretary of state and we welcome this move to rectify that mistake and to create a pathway for restoring faith and credibility in the independent review of Prevent, which can now properly grapple with what the review was intended to achieve.”

Carolin Ott, from the law firm Leigh Day, which represented Rights Watch UK, said: “We are pleased that the government has conceded that the independent reviewer of Prevent and terms of reference need to be rethought. It is regrettable that it has taken the threat of a court hearing and a delay of over four months for this concession to be made.

“However, we hope that reconsideration of the independent reviewer and approach to the terms of reference will lead to a much-needed, rigorous and thorough review of the controversial Prevent strategy.” A judicial review hearing scheduled for next month will not now go ahead.

Harun Khan, the secretary general of the Muslim Council of Britain, said: “We welcome the news that Lord Carlile will no longer be leading the independent review into Prevent, and that the terms of reference will be reconsidered.

“We have long advocated a robust, wide-ranging and objective review of this strategy that has left Muslims feeling demonised, targeted and spied on. A truly independent review of how this strategy has impacted communities, under the stated terms of reference, would have been impossible under Carlile, a long-time supporter of Prevent.

“The government should now look further afield to find a reviewer truly independent enough to lead a review of Prevent that fosters trust among supporters and critics alike.”

The Treasury Solicitor’s Department, the government’s in-house legal service, said in a letter: “Further consideration has now been given to the appointment of Lord Carlile as head of this review; and to the position of the government in these proceedings. It has been decided that the proceedings will not be defended.

“It is made clear at the outset that the government has full confidence that Lord Carlile has carried out the review to date with rigour and an open mind; and the decision not to defend the proceedings in no way calls into question his integrity or fair-mindedness. However, his appointment has been concluded.

“The terms of reference fall with the end of his appointment. The government is currently considering options relating to a future review.”

A Home Office spokesperson said: “We are not contesting this legal challenge. The next steps for the review will be considered in due course. We would like to thank Lord Carlile for his work on the review so far and for his continued contribution to security and counter-terrorism.”

Lord Carlile is understood not to be making any comment.