The British Government admitted for the first time yesterday that it had been involved in "extraordinary rendition". The Defence Secretary John Hutton disclosed that terror suspects handed over to the US in Iraq were flown out of the country for interrogation.

Contradicting previous insistences by the Government that it had no played no part in the controversial practice, John Hutton revealed that details of the cases were known by officials and detailed in documents sent to two cabinet members at the time – Home Secretary Charles Clarke and Foreign Secretary Jack Straw.

The prisoners, two men of Pakistani origin who were members of the Lashkar-e-Toiba group, which is said to be affiliated to al-Qa'ida, were captured by SAS troops serving near Baghdad in February 2004. They were handed over to US custody and flown to Afghanistan within the next few months. Among other inmates who passed through the prison was Binyam Mohammed, the UK citizen recently freed from Guantanamo Bay.

Mr Hutton apologised to the Commons "unreservedly" for misleading statements made by the Government in the past, adding "in retrospect, it is clear to me that the transfer to Afghanistan of these two individuals should have been questioned at the time".

Yesterday, Mr Clarke said he had nothing to add. A spokesman for Mr Straw said "passing references" were made to the cases in documents but he "was not alerted to the specific cases at the time".

There were immediate calls for an inquiry. The former shadow Home Secretary David Davis said the case was the "latest in a series of issues where the Government has been less than straightforward with regard to allegations of torture".

A fellow Tory MP, Crispin Blunt, asked why the transfer had not been more fully investigated in 2004, adding: "It is at the very least unfortunate that both officials and ministers overlooked the significance of these cases, not least since the issue of rendition was already highly controversial ... The country is owed an account of what happened – nothing does more to undermine our fight against terrorism and violence [than] if we depart from the rule of law and the values we seek to defend."

Last night, Liberal Democrat peer Baroness Ludford – who led an EU-wide inquiry into rendition in 2007 – said the admission was "another breach in the wall of denials and cover-ups". She said there was further evidence of 170 stopovers at UK airports by CIA-operated aircraft flying to or from countries where prisoners could be tortured.

The Defence Secretary said the two men continue to be held in Afghanistan as "unlawful enemy combatants" and their status is reviewed on a regular basis. There was no "substantial evidence" he continued, that they had been mistreated or subjected to abuse.

However, a report released by Human Rights Watch in 2004 accused American forces in Afghanistan of inflicting "illegal and abusive treatment" on inmates. Members of the US Congress also alleged mistreatment, with Democratic Senator Patrick Leahy saying some inmates had died. The International Committee of the Red Cross issued a formal complaint to the US in 2007.

Mr Hutton told MPs there had been a number of other errors in previous statements to the Commons, including the number of prisoners held by the UK in Iraq, where ministers "overstated by approximately 1,000 the numbers of detainees held by UK forces".