He is one of the most paradoxical and notorious figures in modern German history: a social democrat lawyer turned leftwing terrorist who went to prison, turned to Maoism and then came out as a far-right nationalist.

Now there is another twist: Horst Mahler, a founding member of the Red Army Faction, was also a Stasi informant.

According to German newspaper reports, the revelation comes from a leaked report by state prosecutors re-investigating the shooting of a pacifist by a Berlin policeman during a 1967 protest.

According to Bild am Sonntag, which claims to have seen the report into the death of Benno Ohnesorg, Mahler was a so-called inoffizielle Mitarbeiter (informal collaborator) for the East German secret service up until 1970.

The outing of any public figure as an IM is a controversial affair, but with Mahler, who is in a Bavarian prison for denying the Holocaust, it is especially striking. If he really was collaborating with the Stasi, it shines a whole new light on his time with the Red Army Faction – better known in the UK as the Baader-Meinhof gang.

Mahler represented the widow of 26-year-old Ohnesorg in a civil case she brought over her husband's death. He also led the student movement's own investigation into the shooting.

The West Berlin policeman who pulled the trigger, Karl-Heinz Kurras, was exposed as a Stasi agent two years ago. The new leaked report even suggests he deliberately fired at Ohnesorg, though he was twice cleared of deliberate homicide.

If Mahler was also working for the Stasi – a fact his lawyer suggests is unlikely – does this mean he was somehow in on a plot to disrupt West Germany by introducing violence into the student protests?

Mahler, who was a little older than the other West German student leaders in the late 1960s, also represented Rudi Dutschke, the most prominent spokesman for the German student movement.

Later on, when Mahler was in prison for bank robberies and assisting a prison escape, Gerhard Schröder, Germany's future chancellor, became his lawyer.

If the leaked investigation into Ohnesorg's death is right, Mahler only stopped being a Stasi informant when he founded the Red Army Faction with Ulrike Meinhof, Andreas Baader and Gudrun Ensslin in 1970. He was arrested shortly afterwards and spent all of the 1970s in jail.

The true circumstances of Ohnesorg's death are important because the killing is widely credited as the catalyst for the radicalisation of the West German left, including those who went on to form the Red Army Faction.

According to Bild am Sonntag, state prosecutors decided to reopen the investigation into the death in May 2009 after Kurras was outed as a Stasi agent. The newspaper claims the leaked report shows the East German secret police played a bigger role in the shooting than was previously thought.

The GDR is already known to have tried to undermine West Germany by funding radical magazines and newspapers plotting its downfall, and, in the late1970s and 80s, offering sanctuary to Red Army Faction terrorists on the run.

Mahler's current lawyer, Mirko Röder, could not be reached by phone on Monday. But the Bild am Sonntag quoted the Berlin-based Röder as saying: "If the prosecutors' findings point to him [Mahler] being an IM, I'm surprised how deeply the Stasi were able to infiltrate the political incidents of West Germany back then."

This is another intriguing piece in the wildly unusual jigsaw that is Mahler's life, said Hans Kundnani, the author of Utopia or Auschwitz, a book about Germany's 1968 generation.

"Many members of the student movement who had grown up in West Germany and saw themselves as revolutionary socialists romanticised the GDR as the 'better Germany'," he said. "After the death of Ohnesorg, Mahler called for 'resistance' against the Federal Republic, which they saw as a fascist state. In that context, he may have seen the 'anti-fascist' GDR as a potential ally. In a sense, his whole life has been a struggle with the Nazi past."

Kundnani met Mahler when researching his book, first at a neo-Nazi retreat in Thuringia and then at his home in a Berlin suburb.

"He preferred talking about Hegel than his own life," said Kundnani. "When I asked him whether he accepted that he had changed his views since the 1960s, he said, 'You have to see it dialectically. One changes, and at the same time one remains the same.' "