The Ulster Unionist peer, Lord Kilclooney (John Taylor), told the inquiry yesterday that he believed in 1972, and still believed, that 13 gunmen were killed by the British army on Bloody Sunday.
In later replies during his testimony, Lord Kilclooney partially qualified his assertion and said: "There are those who now say that innocent people were shot. If that is so it is a tragedy, but at that time I believed that all of those who were shot were shot because they were endangering the lives of the security forces, and that they were armed."
As he was questioned by Mr Michael Lavery QC, for a number of families, Lord Kilclooney asserted that the nationalist community at the time "recognised that this tragedy in Londonderry was a great propaganda coup for them across the world".
He added: "Indeed, on the night of the deaths, nationalists were drinking and celebrating because of what had happened, because they knew it would bring about the downfall of the Stormont parliament.
When counsel queried this, Mr Taylor Lord Kilclooney said: "Perhaps I could provide a tape to show you".
He went on to say that "the propaganda" at the time was that the dead were innocent victims. "I was led to believe they were not innocent by the security forces," he said.
Lord Kilclooney said he thought it was "a terrible tragedy" that people had been killed. He had accepted the word of the army as to why this had happened, but he knew it was very bad for Northern Ireland that people were being killed on the streets in this way, and he realised that it could end in direct rule from London.
The key exchange that provoked an angry reaction came as Mr Lavery asked the witness: "If you believed at that time that 13 gunmen had been killed, I presume that is what you believe?"
Lord Kilclooney replied: "Oh yes, I believed that, and still do, incidentally. . .
"As a minister, I had to take advice from my department officials who would obviously base that advice on what came forth from both the army and the police, and as a minister I accepted that and believed that the army had been shot at and that they had returned fire. When Mr Coyle asked Lord Kilclooney to elaborate on his current beliefs and put it to him that a leading counsel for the soldiers had accepted that the Bloody Sunday dead were innocent, the chairman, Lord Saville, intervened and said that while Lord Kilclooney's beliefs at the time might be of relevance to the inquiry, "what his beliefs may be now seems to be totally irrelevant".
Earlier, Lord Kilclooney was questioned extensively on high-level military memoranda and on meetings of the Joint Security Committee which he chaired at Stormont before and after Bloody Sunday.
He said that the JSC was never told of circumstances under which unarmed civilians would be shot by the security forces. There was never any question, that he heard, of allowing the army under any circumstances to shoot at unarmed civilians, although the army was certainly under pressure to bring an end to the no-go areas in the Bogside and the Creggan.
He also said he regretted that this inquiry had not taken place 30 years ago. "I suspect that this inquiry will not now get sufficiently accurate information to reach accurate conclusions, and regrettably I think that (it) could be influenced by Irish nationalist propaganda," he remarked.
Lord Saville announced yesterday that the venue for hearing soldiers' evidence, beginning on September 2nd, will be the Central Hall, Westminster, and that any other witnesses who successfully apply to be heard in Britain will also give their evidence there.