Allegations that the government helped to arm loyalist gangs with a large arsenal of weapons at the height of Northern Ireland's Troubles are to surface in court proceedings arising from one of the most notorious massacres of the 30-year conflict.

The Ministry of Defence and the Police Service of Northern Ireland (PSNI) are being sued by relatives of six men murdered by a loyalist gunman who opened fire inside a bar crowded with people watching football on television in Loughinisland, County Down, in June 1994. While the families are claiming compensation, they say their aim is to uncover the truth about the killings.

The authorities are alleged to have assisted – or at least turned a blind eye – as about 300 automatic rifles and pistols, hundreds of grenades and an estimated 30,000 rounds of ammunition were smuggled into Belfast in 1987. One of the rifles, a Czech-made VZ-58 assault rifle, was used in the attack in the village.

According to a number of those involved in the shipment, the weapons were provided by Armscor, the arms sales and procurement corporation of apartheid-era South Africa. A deal was struck between Armscor and leading loyalists after a British agent, who infiltrated the paramilitary Ulster Defence Association (UDA) for the army and MI5, visited South Africa in 1985.

The agent was shopping for arms for the UDA. But the MoD has conceded that the trip was funded by the taxpayer, with an army intelligence unit paying his expenses.

There is no conclusive proof that the agent's South Africa trip led directly to the arsenal being smuggled into Belfast two years later. But Niall Murphy, lawyer for the families, said: "We are confident that evidence of British involvement does exist, and we look forward to applying to the high court for its disclosure."

A number of people in South Africa and Belfast who were involved in the talks after the agent's visit told the Guardian they believe the government must have been aware that an arms deal was being arranged, and took no action to prevent the weapons from being smuggled into Northern Ireland, where they were divided between three paramilitary groups.

Within weeks of the consignment arriving in Northern Ireland, loyalist gunman Michael Stone was hurling several of the grenades and firing one of the pistols in an attack that claimed the lives of three people at the funeral of three IRA members at Milltown cemetery in west Belfast. From then on, the number of killings by loyalists rose sharply: during the six years before the weapons were landed, loyalists had killed about 70 people; in the six years that followed, they killed about 230.

Many of the victims were Catholics who had no involvement with the conflict, and as the death toll mounted the IRA came under increasing pressure to call a ceasefire.

There is reason to believe that a number of the paramilitaries connected to the attack were police informers.

There are serious concerns about the way the Loughinisland killings were investigated, with a subsequent inquiry by the police ombudsman establishing that police failed to take some suspects' fingerprints or DNA samples. Police have admitted that one key piece of evidence – the getaway car – was destroyed. There is no evidence that any officer sought or gave permission for this to be done.

The families of the dead men are also bringing civil proceedings against the PSNI after the police ombudsman in Belfast examined the initial investigation and then produced a report which was widely criticised for refusing to acknowledge whether police informers were involved in the massacre. Murphy said: "The experience of these six families demonstrates that the current mechanisms for truth recovery do not work."

It appears likely that the case will be heard under the terms of the controversial secret justice proposals, which will allow government lawyers to keep such evidence secret, disclosed only to a judge behind closed doors, where it cannot be examined or challenged by the families' lawyers.

Although ministers maintain that the justice and security bill is intended to protect intelligence sharing with foreign governments, its critics insist its true purpose is to conceal evidence of government wrongdoing in cases such as this.

An MoD spokesman said: "There is not much we can say at this stage beyond confirming that a claim has been made. This will be dealt with in accordance with the normal process – gathering evidence and presenting it to the courts."

A spokeswoman for the PSNI said: "We would be unable to comment as this is an ongoing legal case."