The Home Secretary, Jacqui Smith, was warned nine months ago about MI5's alleged campaign of blackmail and intimidation against a group of young Muslim men, The Independent has learnt. Veteran Labour MP Frank Dobson wrote to Ms Smith in September about concerns raised by a north London community leader who claimed six youth workers had endured an 18-month campaign of threats and coercion in an attempt to recruit them as informants on their friends and neighbours.

When they refused to co-operate, the men were targeted by the Security Service who threatened to set them up as terror suspects, Mr Dobson was told. The allegations have provoked outrage among Muslim leaders who say MI5's alleged actions have not only damaged relations with ethnic-minority communities but harmed efforts to gather intelligence on real terror suspects.

Mr Dobson was contacted by Sharhabeel Lone, chairman of the Kentish Town Community Centre, on 29 August last year, who told the former cabinet minister of the alleged harassment and urged him to intervene. The MP for Holborn and St Pancras then wrote to Mr Lone on 3 September saying he had raised the men's complaints with the Home Secretary. But Ms Smith is understood to have written back, declining to intervene.

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Last night MPs and Muslim leaders demanded to know whether the Home Secretary had sanctioned the alleged blackmail and harassment. Edward Davey, foreign affairs spokesman for the Liberal Democrats, said: "These disturbing allegations have echoes of the kinds of dark deals that were allegedly put to British inmates at Guantanamo Bay. Recent allegations over Britain's complicity in abduction and torture have already undermined community confidence in the security services."

He added: "Good intelligence is vital to our security, but it is totally counter-productive to risk alienating communities through heavy-handed recruitment and intelligence-gathering tactics. Both the Foreign Office and the Home Office need to clarify the extent to which they have sanctioned policies that would condone these tactics."

In allegations published in yesterday's Independent three of the men claim they were detained at foreign airports on the orders of MI5 after leaving Britain on family holidays. After they were sent back to the UK, they were interviewed by MI5 officers who, they say, falsely accused them of links to Islamic extremism. On each occasion the agents said they would lift the travel restrictions and threat of detention in return for their co-operation. When the men refused some of them received what they say were intimidating phone-calls and threats.

Two other Muslim men say they were approached last year by MI5 at their homes after police officers posed as postmen. Each of the five men, aged between 19 to 25, were warned that if they did not help the security services they would be considered terror suspects. A sixth man was held by MI5 for three hours after returning from honeymoon in Saudi Arabia. He claims he was threatened with travel restrictions if he tried to leave the country.

Inayat Bunglawala, spokesperson for the Muslim Council of Britain, said: "We fully understand that the security services have the very grave responsibility of trying to protect all of us from terrorism. We believe that the most effective way forward is for them to work in co-operation with Muslim communities around the country. Utilising the methods of coercion or issuing veiled threats is not only unethical but will be entirely counterproductive."

A spokesman for the Muslim Public Affairs Committee said: "MI5's entrapment methods are completely counter-productive. We are constantly trying to sell the idea of liberal democracy to young Muslims but when the security services act like this, it makes our job very difficult. Either MI5 are out of control or the Government has sanctioned this kind of behaviour. Either way we would like a full inquiry to uncover whether this sort of behaviour is being backed by the Government."

A spokeswoman for the Home Office confirmed that Jacqui Smith had responded to Mr Dobson's letter but declined to say what she had written as this was confidential.