A suspected middleman in the murder of the prominent Maltese anti-corruption journalist Daphne Caruana Galizia has been offered a presidential pardon in return for sharing potentially crucial evidence.

Malta’s prime minister, Joseph Muscat, confirmed what could be a major breakthrough in the hunt for those who ordered the killing in a statement on the steps of his office on Tuesday morning.

The individual has been identified in the Maltese press as Melvin Theuma, a taxi driver from Birkirkara who has previously been accused of involvement in loan sharking.

He is reported to have offered to name those who gave the order in exchange for a pardon. Theuma is also said to have liaised with people who allegedly helped procure the explosive device that killed the journalist.

Three men are awaiting trial for planting the car bomb that killed Caruana Galizia near her home in the village of Bidnija in October 2017, but those whose instructions they were following are believed to be still at large.

News of the breakthrough emerged on Tuesday morning when Reuters and The Times of Malta reported the arrest. Theuma, who was not identified by Muscat, was apprehended as part of a separate investigation into a money laundering ring, according to the reports.

Muscat said the pardon would apply to any cases on which the suspect may be tried, contingent on him giving evidence and co-operating with the authorities. The prime minister has signed a letter that ensures protection once evidence is given in court.

“I gave a mandate to the attorney general to negotiate with the person’s lawyers to take an unprecedented step,” he told reporters.

Negotiations to secure the deal took place over the weekend, following the suspect’s arrest on Thursday in a joint operation between the police and Interpol, the international police agency, Muscat said. The suspect was under strict protection and the debriefing by police was expected to take a few more days, he added.

Rumours of the arrest began circulating after a magistrate gave permission for the man’s electronic devices to be seized. Europol, the European police organisation that played a key role in 2017 in tracking down the three men who allegedly planted the bomb, is understood to be on hand to analyse the equipment.

Caruana Galizia, known in Malta as a “one-woman WikiLeaks” for her work exposing corruption among her country’s political and business elite, was killed when her car exploded near her home in the village of Bidnija in October 2017. She was 53.

The suspected middleman is understood to have been identified by one of the alleged hitmen.

The developments follow strong criticism of the police investigation by a senior European monitor last month.

Speaking to the Guardian on the second anniversary of Caruana Galizia’s death, Pieter Omtzigt, a special rapporteur for the Council of Europe, listed a catalogue of alleged failings and said he was concerned the authorities may have turned down evidence that could lead to those who commissioned the killing.

He pointed to a failure to agree a deal with one of the alleged hitmen, Vince Muscat, or act on his information, as a concern, saying the police may have turned down “vital evidence”.

The case has shocked Europe, and led to questions about the rule of law on Malta. It has also thrown Malta’s ruling Labour party into turmoil. Among Caruana Galizia’s most important investigations was the revelation that two current members of Muscat’s Labour government had acquired secretive Panama-registered companies soon after taking office.

Muscat said the decision to offer a pardon would be taken without consultation with his ministers. “This will not be discussed or decided in Cabinet. I have a general mandate from Cabinet on decisions such as these, and I will assume political responsibility personally for this decision.”

In a statement, Malta’s opposition Nationalist party leader, Adrian Delia, called on the government to “make use of all procedures and means at hand within the law, even those exceptional ones, in order to catch who ordered, financed, and executed the assassination of Daphne Caruana Galizia”.