The basic facts are undisputed: on 15 April 2004 Ilario Pantano, then a second lieutenant with the US marines, stopped and detained two Iraqi men in a car near Falluja. The Iraqis were unarmed and the car found to be empty of weapons.

Pantano ordered the two men to search the car for a second time and then, with no other US soldiers in view, unloaded a magazine of his M16A4 automatic rifle into them, before reloading and blasting a second magazine at them – some 60 rounds in total.

Over the corpses, he left a placard inscribed with the marine motto: "No better friend, No worse enemy."

Six years later Pantano is on the verge of a stunning electoral victory that could send him to the US Congress in Washington. He is standing as Republican candidate in North Carolina's 7th congressional district, which was last represented by his party in 1871.

With the help of the right-wing Tea Party movement, and with the benefit of his image as a war hero acquired from what happened on that fateful day in 2004, he has raised almost $1m (£630,000) in donations and is now level-pegging with his Democratic opponent, Mike McIntyre.

"We are in complete contention. We are certainly neck-and-neck. And we are feeling terrific," he said at a Tea Party rally outside Wilmington.

Pantano is one of the new breed of hardline Republicans thrown up by the turmoil of the economic meltdown and the ensuing Tea Party explosion. He served in the first Gulf war, then worked for Goldman Sachs before rejoining the marines days after the 9/11 attacks.

A few months after he killed the two unarmed Iraqis, a member of his unit reported him to senior officers and he was charged with premeditated murder. At a pre-trial military hearing, prosecution witnesses testified that the detainees, Hamaady Kareem and Tahah Hanjil, were unthreatening and that their bodies were found in a kneeling position having apparently been shot in the back.

The defence countered that weapons had been found in the house from where the Iraqis were fleeing. The men had turned on Pantano unexpectedly as he was guarding them. He shouted "Stop!" but they didn't respond and he opened fire in self-defence.

Defence lawyers highlighted inconsistencies in the accounts of the prosecution witnesses and portrayed the main witness, who had been demoted by Pantano, as a soldier with an axe to grind. Forensic evidence was said to conflict with the prosecution case.

In the event, all charges against Pantano were dropped on grounds of insufficient evidence. But the officer presiding over the hearing recommended that Pantano be given non-judicial punishment for having displayed "extremely poor judgment", adding that by desecrating the Iraqi's bodies with his placard he had brought disgrace to the armed forces.

Pantano declined to be drawn on the specifics of his case. "I'm running for Congress. I'm not defending myself for something that happened five years ago," he said.

But what about that placard? "I don't need to explain anything to people. If folk are alarmed, well war is alarming. All of my men that are alive are grateful for my service."

Neither Pantano nor McIntyre, who has held the seat for the Democrats for the past 12 years, have raised the shooting incident in their campaigns. The only criticism, paradoxically, has come from the Republican who Pantano beat in the primary election, Will Breazeale.

"I myself was a veteran of Iraq. I've detained Iraqis, and in my view Pantano is no war hero," he said.

Pantano dismissed his criticisms as "an historic case of sour grapes".

But in this district, which has a large military population due to its proximity to Camp Lejeune, the marine base where Pantano's pre-trial hearing took place, most voters know Pantano's story intimately. "He's a war hero," said a top local Republican official who declined to give his name. And the placard? "Doesn't bother me."

Arthur Plante, a veteran of the US coastguard, said: "If I had been in his situation over in Iraq I would have done the same thing." His wife, Cynthia, also a veteran, said: "I would follow Pantano to war any time, any place. He did what had to be done."

Pantano is fighting the election on a national manifesto for change. He wants to cut back on government spending and clamp down on extremist Islam.

He recently spoke at Ground Zero in New York where he opposes plans to build an Islamic cultural centre nearby. "America objects to what's happening there. The folks in this district think it's an abomination," he said.

He has been endorsed by Pamela Geller, one of the leading opponents of the cultural centre who has built bridges between her group Stop Islamisation of America and the British far-right group the English Defence League.

"I don't have any anxieties about Pam Geller," Pantano said. "She is a patriot. I'm thrilled to have her endorsement."