The Metropolitan police are seeking a court order under the Official Secrets Act to make Guardian reporters disclose their confidential sources about the phone-hacking scandal.

In an unprecedented legal attack on journalists' sources, Scotland Yard officers claim the act, which has special powers usually aimed at espionage, could have been breached in July when reporters Amelia Hill and Nick Davies revealed the hacking of Milly Dowler's phone. They are demanding source information be handed over.

The Guardian's editor, Alan Rusbridger, said on Friday: "We shall resist this extraordinary demand to the utmost".

Tom Watson, the former Labour minister who has been prominent in exposing hacking by the News of the World, said: "It is an outrageous abuse and completely unacceptable that, having failed to investigate serious wrongdoing at the News of the World for more than a decade, the police should now be trying to move against the Guardian. It was the Guardian who first exposed this scandal."

The NUJ general secretary, Michelle Stanistreet, said: "This is a very serious threat to journalists and the NUJ will fight off this vicious attempt to use the Official Secrets Act … Journalists have investigated the hacking story and told the truth to the public. They should be congratulated rather than being hounded and criminalised by the state.

"The protection of sources is an essential principle which has been repeatedly reaffirmed by the European court of human rights as the cornerstone of press freedom. The NUJ shall defend it. In 2007 a judge made it clear that journalists and their sources are protected under article 10 of the Human Rights Act and it applies to leaked material. The use of the Official Secrets Act is a disgraceful attempt to get round this existing judgment."

The paper's revelation in July that police had never properly pursued the News of the World for hacking the phone of the missing murdered girl caused a wave of public revulsion worldwide.

The ensuing uproar over police inadequacy and alleged collusion with the Murdoch media empire swept away the top officers at Scotland Yard. It also brought about the closure of the News of the World itself, the withdrawal of the Murdoch takeover bid for Sky, and the launch of a major judicial inquiry into the entire scandal.

Metropolitan police commissioner Sir Paul Stephenson and assistant commissioner John Yates both resigned. David Cameron's former PR chief Andy Coulson is among those who have subsequently been arrested for questioning, along with former News International chief executive Rebekah Brooks.

Police now intend to go before a judge at the Old Bailey in London on 23 September, in an attempt to force the handover of documents relating to the source of information for a number of articles, including the article published by Hill and Davies on 4 July disclosing "the interception of the telephone of Milly Dowler".

Documents written by both reporters about the Milly Dowler story are covered by the terms of the production order police are now demanding.

The application, authorised by Detective-Superintendent Mark Mitchell of Scotland Yard's professional standards unit, claims that the published article could have disclosed information in breach of the 1989 Official Secrets Act.

It is claimed Hill could have incited police working on the then Operation Weeting hacking inquiry into leaking information, both about Milly Dowler and about the identity of Coulson, Rebekah Brooks and other arrested newspaper executives.

A police officer is also being investigated, Scotland Yard say, for breaching the Official Secrets Act, as well as alleged misconduct in public office, for which the maximum sentence is life imprisonment.

An obscure clause – section 5 – of the 1989 Official Secrets Act, highly controversial at the time of its passing, allows individuals to be prosecuted for passing on "damaging" information leaked to them by government officials in breach of section 4 of the same act. This includes police information "likely to impede … the prosecution of suspected offenders".

The clause is aimed at those who deliberately derail investigations by, for example, tipping off a suspect about an impending police raid. But it is being used in this case in an unprecedented way, against individual journalists for publishing a news article. The Guardian's reporters did not pay any police officers.

Police claim their work might be undermined by the alleged leaks. The head of Operation Weeting, deputy assistant commissioner Sue Akers, is on record deploring that some details of inquiries have apparently leaked to the Guardian. Some of the arrestees are reported to be already claiming that media publicity will prevent them getting a fair trial.

Scotland Yard says it has not officially released any of the arrestees' names, none of whom has as yet been charged with any offence. But they do not assert that anyone was "tipped off" by the arrest disclosures in the Guardian or other papers. Most of those questioned were arrested by appointment.

The only previous attempt to use the 1989 Official Secrets Act against a journalist collapsed 11 years ago after a public outcry. Lieutenant Colonel Wylde, a former military intelligence officer, and author Tony Geraghty were arrested in December 1998 by defence ministry police after early morning raids at their homes. Both had computers and documents seized. This followed the publication of Geraghty's book The Irish War, which describes two British army computer databases in Northern Ireland used to identify vehicles and suspects.

Expert reports were produced by the defence showing the information was not damaging. After consultations with Labour attorney general Lord Williams of Mostyn, both cases were finally dropped in November 2000.

Wylde's lawyer, John Wadham, then of Liberty, said: "This case should never have got off the ground … This case is another nail in the coffin of the Official Secrets Act. The act is fundamentally flawed and needs to be reformed."

In the same year, police failed in a similar attempt to get a production order for journalistic material from the Guardian and the Observer, over correspondence with renegade MI5 officer David Shayler. The appeal court, led by Lord Justice Judge, ruled: "Unless there are compelling reasons of national security, the public is entitled to know the facts, and as the eyes and ears of the public, journalists are entitled to investigate and report the facts … Inconvenient or embarrassing revelations, whether for the security services, or for public authorities, should not be suppressed.

"Legal proceedings directed towards the seizure of the working papers of an individual journalist, or the premises of the newspaper … tend to inhibit discussion … Compelling evidence would normally be needed to demonstrate that the public interest would be served by such proceedings.

"Otherwise, to the public disadvantage, legitimate inquiry and discussion, and 'the safety valve of effective investigative journalism' … would be discouraged, perhaps stifled."

In 2009 the police threatened to prosecute Conservative MP Damian Green for "aiding and abetting, counselling or procuring misconduct in a public office". The director of public prosecutions, Keir Starmer, intervened in that case, saying he did not consider that the damage caused by the leaked information outweighed the importance of the freedom of the press.

Only last week the culture secretary, Jeremy Hunt, told MPs: "There is an important difference between off-the-record briefing and the payment of money by or to the police in return for information.

"Journalists must operate within the law, but … we must be careful not to overreact in a way that would undermine the foundations of a free society."

At a speech at the Royal Television Society this week, Hunt praised the Guardian's coverage of the hacking scandal, describing it as "investigative journalism of the highest quality".

The former Met commissioner Stephenson admitted to MPs that he had tried to talk the Guardian out of its phone-hacking campaign in December 2009. He added that "we should be grateful" to the Guardian for ignoring his advice and continuing its campaign.