Police surveillance of a peaceful campaigner was deemed to be unlawful today in a ruling that liberty campaigners say could change the way officers are allowed to monitor protesters.

The court of appeal ordered the Metropolitan police to destroy photographs its surveillance teams had taken of arms-trade campaigner Andrew Wood, ruling that they breached his rights under the European convention on human rights.

The judgment is a serious blow for the Met, which has faced increasing criticism over the way it polices protests since the G20 demonstrations and the death of newspaper vendor Ian Tomlinson.

Wood, a member of the Campaign Against Arms Trade, had been photographed by a Met surveillance unit in 2005 as he left a meeting in London.

His initial claim that the police action had breached his rights was dismissed by the high court in May last year. But today at the court of appeal in London two out of three judges agreed there had been a "disproportionate interference in the human right to privacy".

Lord Justice Dyson said: "The retention by the police of photographs taken of persons who have not committed an offence, and who are not even suspected of having committed an offence, is always a serious matter."

Lord Collins said: "There was a very substantial police presence … when I first read the papers on this appeal, I was struck by the chilling effect on the exercise of lawful rights such a deployment would have."

The case follows an investigation by the Guardian that revealed police had been targeting thousands of political campaigners in surveillance operations and storing their details on a database for at least seven years.

Human rights groups said the decision could have implications for future use of photography by the police, a tactic which they said was being used more frequently, particularly when policing protests.

Wood, who was a media co-ordinator for Caat at the time the photographs were taken, said: "The Human Rights Act is part of the essential checks and balances which help to ensure that we can properly participate in a democratic society without repressive state intervention. It would be a blow for liberty and democracy if, as some have suggested, it were to be abolished."

The photographs were taken in April 2005 as Wood emerged from London's Millennium hotel where he had attended the annual general meeting of Reed Elsevier plc, parent company of Spearhead Exhibitions which runs trade fairs for the arms industry.

He had gained access to the meeting by lawfully purchasing a share in the company. Wood has no criminal convictions and has never been arrested as a result of any campaigning activities.