THE most senior British agent to have been exposed as having worked at the heart of Sinn Fein was found murdered at his home last night.

Denis Donaldson had been shot in the head, execution-style, inside the primitive cottage in Glenties, Co Donegal, where he had been living since he was dramatically outed as a spy in December.

The IRA said in a statement that it was not responsible, but suspicion will fall on an organisation of which Mr Donaldson was a former member.

Irish police said that Mr Donaldson had been killed with a shotgun, and that his hand had been severed during the attack. They would not comment on reports that he had been tortured before death and his body mutilated.

Mr Donaldson’s exposure and murder may seem to be the stuff of thrillers, but the repercussions were only beginning to sink in last night. A senior government source said that the murder was being viewed as an attempt to derail the latest — and possibly final — attempt to bring the Northern Ireland peace process to a successful resolution.

The source was referring to the visit by Tony Blair to the Province tomorrow during which he and his Irish counterpart, Bertie Ahern, will announce the revival of the Northern Ireland Assembly.

Last night the Northern Ireland Office said: “Nothing will deflect the Government from its aim of ensuring political progress in Northern Ireland.” The Irish Government insisted that plans to announce proposals for a new power-sharing executive this week would go ahead despite the killing. “The dark detail that surrounds this murder is a tragic and regrettable reminder of Northern Ireland’s past,” a spokesman said.

Trying to coax the hardline Democratic Unionists into power-sharing with Sinn Fein will prove even more difficult after what will be seen as a highly political killing. Peter Hain, the Northern Ireland Secretary, said that he was “completely appalled by this barbaric act”. Mr Ahern said: “We condemn this brutal murder.” He said that a police investigation was under way.

Mr Donaldson had so many potential and real enemies that it may never be known who carried out the killing. He carried a heavy burden of secrets, from inside the deepest workings of the republican movement and also from the counter-terrorism elite.

Even so, suspicion is likely to be directed in the first instance towards his old comrades. It was only a few months before Mr Donaldson’s exposure that the Provisional IRA said that its “armed campaign” to end British rule in Ireland and all related activities were at an end.

Before that announcement it would have been a certainty that Mr Donaldson would have been treated the same as scores of fellow republicans accused of espionage before him — a bloody interrogation, a bag over the head, a bullet, and a body left on the side of a bleak border road.

Gerry Adams, the Sinn Fein president, who shared a long and close working relationship with Mr Donaldson since they spent time together in jail, immediately condemned the killing and tried to distance the republican movement from it: “I want to disassociate Sinn Fein, and indeed all republicans who support the peace process, from that killing.”

Asked if he believed the murder was, therefore, the work of dissident republicans, he replied: “I’m not going to speculate. Denis Donaldson, as you know, worked for the British Government. He was an agent of the British Government, so I have an entirely open mind if he was killed or murdered, who was behind it.”

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