The man cleared of the murder of Rachel Nickell on Wimbledon Common in 1992 has been awarded £706,000 damages by the Home Office.

Colin Stagg, 45, spent a year in custody before the case against him was thrown out at the Old Bailey in 1994 on the grounds that the police used a “honey trap” plot to encourage him to confess.

Ms Nickell, a 23-year-old former model, was stabbed 49 times as she walked on the common with her two-year-old son.

Mr Stagg, from Roehampton, southwest London, lived near by and was arrested for her murder, which he always denied. The Metropolitan Police tried to build a case against him using the female undercover officer who befriended him. Even after the case collapsed, the Metropolitan Police said they were not looking for anyone else in connection with the murder. After a review of Ms Nickell's killing, police charged Robert Napper, 41, with murder last November. He is due to face trial in November.

Mr Stagg said yesterday that the award was like “winning the lottery”, adding: “I am feeling a sort of peace for the first time since my arrest 15 years ago. I am now slowly realising that I have a future after all, and that is a great feeling.”

Last year Mr Stagg was told that he was eligible under a discretionary compensation scheme, with the amount to be set by an independent assessor, Lord Brennan, QC.

His solicitor, Alex Tribick, said that the offer was made in a letter from the Office of Criminal Justice Reform on Tuesday after an application for compensation. He said his client did not believe him initially when he told him the amount.

He said that Lord Brennan submitted a “carefully considered and reasoned” 70-page document supporting the award in which he described the police tactics as “highly unusual and legally bizarre”. He said they had contributed to his decision to award such a large sum.

“I am quite satisfied that this amounts to misconduct in the investigation and prosecution of this case and I categorise it egregious,” Lord Brennan concluded.

Mr Tribick said that he had been asked by Mr Stagg to look at the possibility of suing the Metropolitan Police for malicious prosecution, but thought this would be “jolly tricky” because of time limits that may have expired to begin such a claim.

Of the compensation, he said: “This is an offer that has been made and that offer has been accepted. Naturally Colin is relieved and it will go some way to compensating him for the vilification that he has received at the hands of the public and media for the last 16 years.

“It will allow him to try and rebuild his life and to have some sort of normal existence. But of course what he really wanted was an apology from the Metropolitan Police and I think he has accepted that is something he will never get.

“He is not angry - he is hurt and disappointed. He is gradually getting his life back on track and this will act as a catalyst.”

Mr Stagg said yesterday: “I would like to buy my council flat where I have lived for over 30 years and I want to put in a new bathroom and kitchen and make a few changes in the garden and, of course, make sure that I have got food on the table and my bills paid.

“The best thing is being able to get off the dole. I am a proud man who has never been afraid of work, but nobody in the countless interviews I have attended has wanted to take me on. Now I have got a couple of small business ideas I can afford to try out, but I want to take my time and not rush into things.

“I am still coming to terms with all the implications that go with the award. I am not going on a spending spree. I plan to bank most of it. That is what I have got to live on for the rest of my life.”

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