The Home Secretary said tonight that the 12 terror suspects whose detention without trial has been ruled in breach of human rights law will stay exactly where they are.

Charles Clarke issued an uncompromising statement to the House of Commons ruling out releasing the 12 overseas nationals who are currently held in Belmarsh and Woodhill maximum security prisons and in Broadmoor maximum security hospital.

In his first day in the job after replacing David Blunkett as Home Secretary, Mr Clarke had to deal with a huge setback to the Government's War on Terror, when its flagship Anti-Terrorism Crime and Security Act was found to breach human rights law by a panel of nine Law Lords.

The Law Lords ruled this morning, by a margin of eight to one, that it was discriminatory to imprison foreign nationals indefinitely without trial, when British citizens cannot be held in the same way. They also found that the Government had been wrong to opt out of Article 3 of the European Convention on Human Rights, guaranteeing rights to a fair trial.

Lord Bingham, the former Lord Chief Justice who chaired the panel, said that imprisonment without trial was disproportionate to the terror threat it was supposed to counter.

Lord Hoffman, for many years an unpaid director of Amnesty International, went further and said that imprisonment without trial was a greater threat to Britain in the long run than terrorism itself.

Only Lord Walker of Gestingthorpe supported the Government's position, saying that although detention without trial was a matter of grave concern, the measures were judged necessary by Parliament and had not been used excessively or oppressively.

The panel's ruling was warmly welcomed by the human rights campaign groups Liberty and Amnesty International, who have described the men's internment as "Guantanamo in our own back yard". Lawyers for the nine detainees who brought the appeal called for the men to be freed immediately.

But tonight Mr Clarke ruled out early release for the 12 detainees, all Muslims and mainly from north African countries, who include the radical Muslim cleric Abu Qatada, a Palestinian refugee called Mahmoud Abu Rideh, and ten other men whose identities are kept secret to protect their innocent families. "It is ultimately for Parliament to decide whether and how we should amend the law," said Mr Clarke in his statement.

"Accordingly I will not be revoking the certificates or releasing the detainees, whom I have reason to believe are a significant threat to our security, a judgment upheld by the Special Immigration Appeals Commission, chaired by a High Court judge."

Mr Clarke went on that far from striking down the law, he would instead be asking Parliament to renew the controversial provisions of the Act in the New Year.

He conceded: "In the meantime we will be studying the judgment carefully to see whether it is possible to modify our legislation to address the concerns raised by the House of Lords."

Gareth Peirce, a solicitor who represents eight detainees, gave warning that she would pursue the case to the European Court of Human Rights if the Government did not respond to the ruling at once. She said that four of the men had been driven mad by their three year imprisonment, and four more were severely affected by it. "The Government has to take steps to withdraw the legislation and release the detainees," she said.

"The indeterminate nature of their detention has forced four of them into madness. There are four more who are seriously affected by this. It is an extraordinary statistic.

"We would expect the Government to respond immediately and we look forward to that. There is no escape route for the Government, no escape route whatsoever."

Shami Chakrabarti, director of Liberty, said: "Internment has been a festering sore on our nation's conscience for nearly three years.

"By acting as judge, jury and jailer the Government have flouted the very values it claims to defend. It must now act and charge or release all those currently held without delay."

Detainee A, who is currently in Woodhill prison, said that the ruling had restored his faith in British justice. Iqbal Sacranie, secretary-general of the Muslim Council of Britain, said: "We accept that our Government has an obligation to protect the lives of its citizens, but it also has an obligation to respect their liberties and freedoms.

"If these men have done or were planning something as serious as we have been led to believe then they should be charged and brought to trial. If not, they should be released without delay and given medical attention."

Massoud Shadjareh, chairman of the Islamic Human Rights Commission, went further and urged the Government to repeal all its current anti-terrorism legislation.

"Let us hope that this decision together with the resignation of David Blunkett signals a new era of human rights and civil liberties in Britain, in which Muslims are not singled out and demonised on the basis of their faith," he said.

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