Vetted lawyers would see information but not share it with clients under the plans in the wake of Guantánamo cases

Intelligence gathered by MI5 and MI6, even if obtained by torture, will never be disclosed in court proceedings and more inquests would be heard in private under proposals announced by the justice secretary, Kenneth Clarke.

The proposals – in a green paper called Justice and Security – have been welcomed by the security and intelligence agencies, but criticised by civil rights groups for promoting "secret justice".

They were prompted by recent civil cases, notably those concerning Binyam Mohamed, a UK resident and terrorism suspect who says he was tortured with the knowledge of British security and intelligence agencies, and claims by nine other British residents held in Guantánamo Bay with, they say, the connivance of MI5 and MI6.

In the Mohamed case, the appeal court released a summary of CIA intelligence revealing some of what MI5 and MI6 knew about the abuse and torture of terror suspects. The CIA was angry, and briefly suspended some co-operation with MI6.

Last year, the supreme court rejected the government's attempts to suppress evidence in civil cases, accusing it of undermining fundamental common law rights. To prevent further intelligence evidence being disclosed in court, the government subsequently paid compensation to the former Guantánamo detainees.

Clarke indicatedin the Commons on Wednesday that the compensation amounted to about £20m, and 30 other cases were in the pipeline.

Under the government's plans, all "sensitive" information held by MI5 and MI6 would be discussed in secret court hearings. "Special advocates", security vetted and approved by the government, would see the information on behalf of individual defendants or claimants but not would not be able to reveal it to them.

Such procedures, or alternatively vetted jurors, could also be used in coroners' inquests, the government has said. An alternative would be to vet family members, but the government concedes that "could be extremely distressing for a family grieving the loss of a relative" and that some relatives may not agree.

"In many cases, the facts cannot … be used in open court … without risking serious damage to national security or international relations," ," Clarke said.

"Difficulties arise both in cases in which individuals are alleging government wrongdoing, and in cases in which the government is seeking to take executive action against individuals who pose a risk to the public."

The government has proposed a sweetener, in the form of a modest boost to the parliamentary intelligence and security committee, though the body will continue to hear the bulk of evidence it hears in secret.

The green paper all but rules out the idea of an inspector general overseeing the security and intelligence agencies – the practice in other Commonwealth countries and the US – to replace the judges who currently act as oversight "commissioners" in Britain.

Clarke said consultation would continue until January, and the government hoped to introduce legislation next year.

The shadow justice secretary, Sadiq Khan, broadly welcomed the green paper, telling MPs the use of classified intelligence "can prove to be a challenge to maintaining open justice".

But the former Conservative shadow home secretary David Davis said: "I'm concerned … that were [the green paper proposals] in place a few years ago, what we learned in the Binyam Mohamed case would not have been put into the public domain, we would not have the inquiries and we would not have been able to resolve the issues that came from it.

"Other nations – Canada, Australia, Germany, France, Italy, all our major allies other than America – are able to be very robust about this. Why can we not be?"

Isabella Sankey, the policy director of the civil rights group Liberty, said: "The security services seem to think that having to compensate former Guantánamo detainees for failing in their duty to them justifies closing down open civil courts into the future.

"These payouts should encourage the avoidance of complicity in torture, not blatant attempts to halt centuries of British justice. Further inroads like this will make it even easier for the system to be abused – to prevent embarrassment, not protect national security."

Clare Algar, executive director of the human rights charity Reprieve, said: "The government is seeking to close off the very methods by which we first found out about UK complicity in torture and rendition. Were the measures proposed today in place at the time of the Binyam Mohamed case, the British public would never have known about the appalling abuses our own officials had been involved in."

She continued: "This government came to power claiming it wanted to get to the bottom of Britain's involvement in torture. Instead, they are merely seeking to ensure that in future, whatever dirty secrets are swept under the carpet stay there."