When Jonathan Evans, the director of MI5, took his campaign to retain control orders to the lord chancellor, Ken Clarke, he got a typically robust response. Reports that he was thrown out of the veteran minister's office may be over-egging it, but Evans certainly went away with a flea in his ear and the clear understanding that Clarke, a former home secretary who is unlikely to be intimidated by MI5, is opposed to the continuation of a repressive and ineffective measure.

Control orders – more accurately described by juntas the world over as house arrest – are still causing problems in the coalition. But the more one hears about the row behind the scenes the more one suspects that the fault line exists not just between politicians of different stripe, but between the coalition and an impatient authoritarian rump of civil servants, police and the intelligence officers. An unelected establishment is fighting very hard to retain an arbitrary power that was granted by Labour with its customary lack of care for Britain's traditions of justice and rights.

Control orders are one of the controversial measures being examined under the review of terror laws that was announced by Theresa May in the summer. It was due to be published last week, but has now been delayed by at least a month because of the row. While the process is being overseen by Liberal Democrat peer Lord Macdonald, it is vital to understand that this is an internal review conducted by vested interests at the Home Office, in the shape of the Office for Security and Counter-terrorism.

Charles Farr, head of that unit, and the director of MI5 have both declared their support for control orders and 28-day detention without charge. The latter has even written to David Cameron warning that public safety cannot be guaranteed if control orders are abolished, which is certainly an unusual step and follows the high-profile campaign by the former head of the Met, Sir Ian Blair, on extending detention without charge from 28 days.

In turn, Lord Macdonald, a persistent libertarian voice during the last government, has written to the home secretary to say he would not stand for a continuation of the orders. It is also understood that he won't sign off on any amended control order regime designed as a compromise between what can loosely be described as the forces of might and right. On his side are Ken Clarke, attorney general, Dominic Grieve, and energy secretary, Chris Huhne, who spoke for the Lib Dems on home affairs under the last government. And after swallowing a number of difficult decisions, Nick Clegg went on the attack last week with this: "They [control orders] are a fairly dramatic departure from basic due process, where people's liberty can be curtailed without evidence being produced that would lead to their prosecution."

Whether "the fucking car crash", envisaged by David Cameron (and first revealed by my colleague Andrew Rawnsley), has already happened or the vehicles are skidding towards each other is moot, because the two sides are utterly entrenched and there seems no easy way of finessing the situation. Clarke's rebuff of Evans is evidence of that. But this is more than a political rubbernecker's treat because on the outcome of the terror review depends the moral authority of the government and the way Britain defines itself to the world.

All that easy talk of principle and liberty by the coalition parties in opposition now has to be acted upon; otherwise, they will seem no better than the last government, whose comprehensive attack on liberty left us with so many bad laws and disreputable habits, one of which is confining suspects who have no experience of an open legal process, are not allowed to know the evidence against them and have no information about their release date.

Pity the British ambassador to Burma, Andrew Heyn, who has consistently argued against the house arrest of the Burmese opposition leader, Aung San Suu Kyi, in the run-up to today's elections. All the generals need do is point to the nine men subject to control orders in Britain and ask Mr Heyn to enlarge on the difference between house arrest in Tooting Bec and Naypyidaw. Of course there are distinctions, but the principle of confining people without giving them a reason, or hope of liberty, is the same.

If this system is retained, we must ask what meaning the Freedom Bill has when it is published in the first quarter of next year. Will it be possible for the coalition to claim that the UK is reaffirming its commitment to liberty and rights by reducing the surveillance state, while at the same time maintaining house arrest for awkward citizens and residents who can't be charged? I doubt it. A compromise on control orders and 28 days without charge will simply corrode the meaning and potency of the bill and make the Lib Dems look foolish.

In the end, this is not really very hard. When the director general of MI5 says to David Cameron that public safety cannot be guaranteed without control orders, does he mean to suggest that control orders in fact guarantee safety? If so, they are surely the most inefficient defence ever invented, because seven individuals have absconded. And if these suspects represented such a grave threat to the realm and its people, why have they not all been apprehended? Could it be that they weren't such a menace and had therefore been unjustly treated?

To ask these questions is not the same as underestimating the threat we face from jihadists or the good work MI5 does: it is to suggest that a regime that allows a man such as Cerie Bullivant to be picked up on the word of his mother's less than reliable neighbour and placed on a control order, without allowing him to explain himself to a court, is plain wrong.

Bullivant eventually went on the run to escape despair and depression, but gave himself up and was charged with breaching the order. Only then could he appear in front of a jury and explain himself, although it is important to understand that the court was never allowed to challenge the validity of the original control order. His status as suspect could not be doubted, yet a normal judge in a normal court of law, where there are no closed sessions, secret testimony, or winks between lawyers who act as bellhops for the security service, found that MI5 had shown "no reasonable suspicion" that he was security risk.

The point that must strike anyone, even our brilliant, tap-dancing prime minister, is that Bullivant had to get himself charged with a crime before gaining his freedom, which, given he had never done anything wrong in the first place, is as daft as it is sinister. Charge a man and allow him to defend himself; otherwise let him be.