Germany's intelligence services have revealed that they are investigating whether members of a brutal neo-Nazi terror gang, responsible for a series of bomb attacks and cold blooded murders, were double agents who also covertly worked as secret service informers.

Suspicions of an extraordinary intelligence service link with the far-right group have emerged following a spectacular police raid in eastern Germany last week, which tracked down a neo-Nazi terrorist cell that had eluded police and prosecutors for more than a decade.

The gang, which called itself the National Socialist Underground, murdered a policewoman and nine immigrant street vendors – who were shot in the face in broad daylight – carried out two bomb attacks which injured dozens, and robbed 14 banks to finance its operations.

The attacks were among the most brutal carried out by a neo-Nazi organisation in Germany since the Second World War. The Interior Minister, Hans-Peter Friedrich, described them as a "new dimension" of far right terror.

Gang members left behind DVDs in which they boasted about their murders and showed the bloodstained corpses of their victims, alongside bizarre images of the Pink Panther cartoon figure.

Yesterday Chancellor Angela Merkel described the activities of the gang as a "disgrace for Germany" and pledged that her government would take all steps to fully investigate why the far-right extremist group had been able to operate for so long without being caught. Last week police discovered the bodies of Uwe Mundlos and Uwe Böhnhardt, both in their 30s, in a burned out caravan in the east German city of Eisenach, after they were called to investigate a bank robbery in the town. The two, ringleaders of the gang, had carried out the robbery and subsequently committed suicide, police said.

A third suspect, a woman identified as Beate Zschäpe, 36, surrendered to police in the eastern town of Zwickau after blowing up her rented flat in an attempt to destroy incriminating evidence. A fourth suspect was arrested near Hanover on Sunday.

However, it has since emerged that investigators found a pistol in the ruins of the building linking the gang to the murders of one Greek and eight Turkish street vendors in separate incidents across Germany, and also highly sensitive intelligence documents suggesting that gang members may also have worked as secret service "moles".

According to information supplied to the Bild newspaper, police discovered so-called "legal illegal" intelligence service documents belonging to the cell members in the ruins of Zschäpe's apartment.