The six environmental activists facing charges of conspiring to take over a power station spent less than 30 seconds in the defendants' box. No sooner had a court clerk ushered them into the dock at Nottingham crown court than he realised his mistake. Before the judge had even entered the room, the six campaigners, who were planning to deny conspiring to break into Ratcliffe-on-Soar power station, were told they could occupy seats normally reserved for the jury instead.

What everyone in the courtroom knew – but no one had yet said – was that the remarkable story of PC Mark Kennedy, the undercover police officer accused of helping organise and pay for the protest, had prompted the collapse of the prosecution case.

Felicity Gerry, prosecuting, said only that the Crown Prosecution Service had conducted a "review" of the case and decided not to submit evidence. Judge John Milmo agreed to enter not guilty verdicts on all six defendants, who were among 114 activists arrested in April 2009 on the eve of a protest in which some planned to occupy the power station.

After a short discussion about costs, they walked free, and headed straight to the steps of the courthouse to give the assembled media a detailed account of the activities of Kennedy, who infiltrated their movement.

Calling for an inquiry, they said the undercover officer police officer played a central role in organising and paying for the invasion. "We're not talking about someone sitting at the back of the meeting taking notes," said Danny Chivers, one of the six defendants to accuse Kennedy of crossing the line from passive spy to agent provocateur. "He was in the thick of it."

More embarrassing still for his police minders, Kennedy was described as so repentant that he was willing to betray his ex-employers and give evidence that would help the activists. According to their lawyer, Kennedy had apparently become convinced of their cause, and "gone native", offering to help their defence.

Mike Schwarz of Bindmans said the seven-year infiltration by Kennedy, details of which were revealed in the Guardian, raised "serious questions" for the civil liberties of peaceful protesters. His clients, who were charged with conspiracy to commit aggravated trespass, acknowledged that they had gathered at a school before the protest, but denied they were among those who were committed to breaking into the power station.

Posing as a "freelance climber", Kennedy had infiltrated dozens of protest groups in 22 countries. His true identity was only discovered in October, when friends who had grown suspicious of his behaviour discovered a passport bearing his real name. Confronted with other documents that proved he had been a police officer since 1994, Kennedy admitted that he had been working undercover.

Suspicions were raised almost immediately after the Ratcliffe arrests, when Kennedy declined to share the same law firm as the other activists. "On Easter Monday 2009, over 400 police officers were involved in a raid at Iona school in Nottingham, which led to 114 arrests. I represented 113 of those arrested," Schwarz said. "The 114th we now know was PC Kennedy, an undercover police officer.

"Serious questions must be asked relating to the policing of protest, from the use of undercover officers, to the use of expensive and legally questionable mass pre-emptive arrest of protesters, to extremely restrictive pre-charge bail conditions, to the seemingly arbitrary nature by which the 114 initially arrested were reduced to the final 26 who were eventually charged."

Schwarz added: "The police need to answer some serious questions about their conduct relating to protesters. This is a serious attack on peaceful, accountable protest on issues of public and pressing importance like climate change. One expects there to be undercover police on serious operations to investigate serious crime. This was quite the opposite. This was civil disobedience, which has a long history in this country and should be protected."

The remarkable disclosure of Kennedy's double life has been met with silence from the police, with two forces involved in the operation and the national public order monitoring unit refusing to comment.

In a statement, the CPS said: "Previously unavailable information that significantly undermined the prosecution's case came to light on Wednesday 5 January 2011. In light of this information, the Crown Prosecution Service reviewed the case and decided there was no longer sufficient evidence for a realistic prospect of conviction."

Twenty other activists were convicted of conspiring to break into the power station last month, after they failed to convince a jury that their actions were designed to stop 150,000 tonnes of carbon being released into the atmosphere. Those activists were given lenient sentences last week, after a judge recognised their protest, which would have caused minimal damage to the power station, was intended as a "legitimate" demonstration with "the highest possible motives".