The government has lost an appeal against allowing two former terror suspects to sue for damages.

The men had control orders quashed because the home secretary had not disclosed allegations against them.

The Court of Appeal ruled that they should be able to claim compensation for the three years in which their movements were restricted.

It paves the way for other suspects to sue for damages over legally-flawed control orders.

Judges had previously warned the men - AF and AE - not to expect big pay outs if they win.

AF is a British Libyan man accused of Islamist activity.

AE is an Iraqi Kurd accused of involvement in the Iraqi insurgency.

Both men have been living freely in the UK since last autumn when their control orders were quashed.

The decision was to reject the government's challenge was taken by three appeal judges.

While in office, former Labour home secretary Alan Johnson agreed the control orders restricting the movements of the two men had to be "revoked" because neither man had been given sufficient disclosure of the evidence supporting the allegations of terror-related activity made against them.

In January, Mr Justice Silber, sitting at the High Court in London, said the orders must not only be revoked but quashed - with retrospective effect.

That decision effectively gave the go-ahead for damages claims for loss of liberty and alleged violations of the European Convention on Human Rights dating back to 2006, when the orders had first been imposed.

The government mounted an appeal against the judge's decision.

Lord Justice Maurice Kay, sitting with Lord Justice Rix and Lord Justice Stanley Burnton, dismissed the appeal and ruled the "appropriate remedy" was quashing with retrospective effect.

Outlining his stance, Lord Justice Kay said: "I agree with the submission made on behalf of the controlees that, if the appropriate remedy was merely revocation, there is a risk that the breach of convention rights would go substantially unremedied."

The appeal judges refused Home Secretary Theresa May permission to appeal to the Supreme Court.

The control orders on AF and AE initially included 18-hour curfews, as well as other restrictions on who the men could contact.

Despite government suspicions that they may have been involved in terror-related activities, neither man has ever stood trial.