The investigation into the alleged spy ring that closed the Northern Ireland Assembly in 2002 quietly collapsed today when prosecutors said they were dropping the case against three men accused of stealing documents for the IRA.

The sudden end to the inquiry was announced at an unlisted hearing at Belfast Crown Court. After three years of interviews and evidence gathering, a lawyer for the Northern Ireland Public Prosecution Service said no more evidence would be put forward and that the case was no longer in the public interest.

The judge, Mr Justice Harte, said charges were therefore dropped against Denis Donaldson, Sinn Fein's former head of administration at Stormont, his son-in-law Ciaran Kearney, and William Mackessy, a former porter at the Northern Ireland Assembly.

The end of the case, which is believed to have cost the Government nearly £30 million after it was forced to rehouse hundreds of prison service employees after their addresses were found in Sinn Fein's offices at Stormont, was greeted with relief, astonishment and some anger in Northern Ireland. Unionists complained that justice had once again been manipulated to placate the IRA.

Lawyers for Mr Donaldson, Mr Kearney and Mr Mackessy have always maintained that the case was politically motivated, and that the alleged spy ring was created by members of the security forces in Northern Ireland who wanted to bring down the power-sharing assembly made by the Good Friday Agreement.

The widespread belief that IRA operatives were spying at Stormont, and stealing sensitive information that could be used in possible attacks against unionist enemies and the Government, led to the closure of the assembly more than three years ago. It has not re-opened since.

"Since October 2002 our clients have had extremely serious charges hanging over them. Both of them have vehemently denied the allegations against them," said Ciaran Shiels, who represented Mr Donaldson and Mr Mackessy in the case.

"Their arrests had not only serious consequences for themselves and their families but also for the wider community in the sense that their arrests led to the fall of the power-sharing executive at Stormont.

"Our clients are of the clear view that they were victims of a political operation by elements within the security forces who deliberately used their position to hamper political progress in this country."

A statement issued on behalf of Mr Kearney said there was never enough evidence to secure a conviction of the three men, who were arrested after police in riot gear raided Sinn Fein offices and houses and recovered more than 1,000 secret documents.

"This case achieved its political aim and the prosecution today closed it but there remains some major concerns which will be pursued in another forum," said the statement.

Martin McGuiness, the deputy leader of Sinn Fein, called the case "a shameful episode" and "a damning indictment" of the Police Service of Northern Ireland. Mr McGuiness said the PSNI had allowed itself to be steered by anti-republican members of the former Royal Ulster Constabulary Special Branch.

"There never was a spy ring operating at Stormont," he said.

The PSNI maintained today that the IRA did operate a spy ring at Stormont but acknowledged that there were "no further lines of inquiry and no individuals are being sought by the police".

"The background to this case is that a paramilitary organisation, namely the Provisional IRA, was actively involved in the systematic gathering of information and targeting of individuals," the police said.

"Police investigated that activity and a police operation led to the recovery of thousands of sensitive documents which had been removed from government offices. A large number of people were subsequently warned about threats to them. That police investigation has concluded."

The mysterious decision to drop the case prompted anger among loyalists. Ian Paisley Jr., justice spokesman for the Democratic Unionist Party (DUP), which has emerged as the largest unionist party in Northern Ireland since devolution was suspended, called it a "whitewash".

"It is quite disgraceful that yet again the judicial process has been manipulated in order to placate the IRA agenda. This is a cover-up and whitewash of the worst type," he said.

In the House of Commons, Nigel Dodds, DUP MP for North Belfast, called for a Government statement, saying: "This has caused great anxiety and consternation amongst the people of Northern Ireland this morning."

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