British aid worker Linda Norgrove may have been killed by a grenade thrown by US troops trying to rescue her from Taliban kidnappers in Afghanistan, David Cameron said today.

The prime minister announced that a full UK-US investigation was now being launched into the circumstances surrounding Norgrove's death on Friday.

Speaking at a press conference today, Cameron said that General David Petraeus, the commander of Nato forces in Afghanistan, had contacted his office this morning to say a review of the rescue operation had revealed she "may not have died at the hands of her captors" as originally thought.

It had initially been reported that Norgrove died from a grenade explosion, but subsequent reports suggested her rebel captors detonated a bomb vest as American troops attempted to rescue her.

Cameron said: "Linda's life was in grave danger from the moment she was taken ... He [Petraeus] and US forces did everything in their power to bring Linda home safely."

He added: "In the end this is an issue of a very difficult judgment ... You can never be certain that an option like this will lead to the rescue of the hostage ... In the end you have to make a decision whether to go ahead or not." He said he felt like it had been the right decision based on what the UK and US knew at the time.

"You will understand that I cannot discuss the intelligence information that led us to decide that a rescue operation was the best choice."

The Guardian understands that Cameron and William Hague, the foreign secretary, were advised by MI6 and SAS officers before agreeing to the plan to rescue Norgrove. Her family was unlikely to have been informed.

It was agreed that US, rather than British, special forces, should be involved because the Americans knew the area better.

Asked if he had considered using British special forces to rescue Norgrove, the prime minister said: "Of course I asked a huge number of questions." He says he followed the advice of Petraeus, who was on the ground, adding that it would have been strange to overrule the advice of US officials.

Cameron said he was "deeply sorry" that the situation had "not worked out the way we all wanted it to".

Cameron also thanked US forces for their "courage", and said statements made on Saturday as to how Norgrove died, which now appear to be incorrect, were made in good faith.

Asked whether there was any suggestion US forces were reckless, the prime minister said: "We must get to the bottom of what happened; we only have sketchy information." Petraeus "deeply regrets what happened, as do I", Cameron said.

US Central Command named a special operations officer, Major General Joseph Votel, to head the investigation. In a a statement, Central Command said the investigation team would work "in close co-operation with UK authorities".

Originally from Sutherland in the Scottish Highlands, Norgrove was seized by militants in Kunar province on 26 September.

Three Afghan nationals also taken by the insurgents were later released, but Norgrove continued to be held amid growing concern.

A former United Nations employee, Norgrove was working for the firm Development Alternatives Inc at the time of her kidnap.

Based in Jalalabad, she supervised reconstruction programmes in the eastern region of Afghanistan funded by the US government.

Cameron said: "Linda's death is a tragedy for her family and those who worked alongside her in Afghanistan. She was a dedicated professional doing a job she loved in a country she loved."

Cameron informed Norgrove's family of the "deeply distressing development" before making his announcement at a scheduled press conference that was delayed by almost an hour this morning.

Speaking from the Isle of Lewis today, Norgrove's father, John Norgrove, said: "We are not saying anything to the press at the moment. We might issue a statement in another day or two, we're not certain, but now we are not saying anything." Asked whether that was the case in the light of Cameron's comments today, Norgrove said: "We are just saying that, end of story."

Cameron said the decision to mount a rescue operation was made by Hague "after careful consideration" and had his full support as prime minister.

Norgrove's life was in "grave danger" from the moment she was seized, and there were fears that she might be passed up the terrorist chain and put at greater peril if she was not rescued.

"I am clear that the best chance of saving Linda's life was to go ahead, recognising that any operation was fraught with risk for all those involved and success was by no means guaranteed," said Cameron.

"None of us can understand just how painful this must be for Linda's family," he said. "Also it is deeply regrettable, particularly for them, that the information published on Saturday is highly likely to have been incorrect.

"The statements were made in good faith and on the basis of the information that we received.

"I want to assure Mr and Mrs Norgrove that I will do everything I possibly can to establish the full facts and give them certainty about how their daughter died."

Cameron said Petraeus had treated the hostage "as if she was a US citizen" and that "he and the US forces did everything in their power to bring Linda home safely".

"The US forces placed their own lives in danger. General Petraeus has told me they are deeply dismayed at the outcome. I want to thank them for their courage," he said, adding: "We have to now have this investigation to find out what happened and if bad mistakes were made."

In a statement to the MPs in the Commons this afternoon, Hague said a rescue operation was the "only realistic" prospect for her release and paid tribute to the US troops "who risked their lives to rescue a British subject".

The shadow foreign secretary, Yvette Cooper, said "we condemn utterly the actions of the hostage-takers throughout these events", but added: "There are important questions that now do arise" about the nature of the authorisation Hague gave to the operation and his level of involvement.

Hague said "we are still designing the form of the investigation" and deciding whether it would take place under the auspices of Isaf (Nato forces in Afghanistan) or the US military with UK involvement.

Last year a British commando raid on a Taliban hideout rescued kidnapped New York Times reporter Stephen Farrell, who has British and Irish citizenship. But Farrell's Afghan translator Sultan Munadi, a British soldier, and a woman and child were killed in the raid, raising questions about whether military force should have been used.

Additional reporting by Ewen MacAskill in Washington

• This article was amended on 12 October 2010. The original omitted to mention the death of a British solider in the rescue of Stephen Farrell. This has been corrected.