Five protesters who were assaulted by officers and kept in police custody for two nights have been paid tens of thousands of pounds in an out-of-court settlement.

The five have received £85,000 in compensation plus costs, together totalling more than £100,000, in a settlement recorded at the high court this week. Their detention after a demonstration in London three years ago was "unlawful" and a restriction of their "democratic right to peaceful protest", the Metropolitan police accepted in a statement released this week.

The admission follows criticism of police behaviour at the G20 summit this month and campaigners say the payout will reinforce concerns about the Met's handling of public order events and may encourage others to seek compensation.

The peaceful rally outside the Mexican embassy in October 2006 was attended by about 20 activists calling for action over the murder of an American filmmaker, Bradley Roland Will, during a teachers' strike in the city of Oaxaca. The shooting was blamed on local state officials.

The vigil was part of a worldwide day of protest outside Mexican embassies. Eight people were arrested in London. All eventually had the charges against them dropped or were found not guilty of public order offences.

Yesterday Tony Murphy, the solicitor at Bhatt Murphy who brought the claim, said: "This case shows that policing protest unlawfully carries a high cost. This includes the severe human cost to protestors, but also the cost to the public purse and more worryingly to public confidence in the police. The implications for those I am advising in relation to G20 are clear."

David Howarth, a Lib Dem MP who has been following the case, said: "Given that the Met has admitted liability, the question now is why the officers concerned are not being investigated for criminal offences. This underlines the urgent need for an independent review of the police's attitude towards peaceful protest."

The formal apology sent to the protesters by Detective Chief Inspector Alex Gibbs, of the Met's directorate of professional standards, stated: "It is accepted that your arrest was unlawful and that any force used on you during your arrest was therefore an assault and battery.

"... I am in no doubt about the significant effect that this matter has had on you and on your democratic right to peaceful protest ... I unreservedly regret the upset and distress that this must have caused.

"The policing of public order events and demonstrations ... requires a careful balance of the rights and freedoms of often conflicting interests and necessitates officers making difficult decisions under notable pressure. In this case it is clear that balance was not achieved ... Lessons have been learned."

James Welch, from the civil rights organisation Liberty, said: "It's always good to see the police recognise the right to peaceful dissent, even if it is after an embarrassment and under pain of litigation.