A spy at the heart of Nato may have passed secrets on the US missile shield and cyber-defence to Russian Intelligence, it has emerged.

Herman Simm, 61, an Estonian defence ministry official who was arrested in September, was responsible for handling all of his country's classified information at Nato, giving him access to every top-secret graded document from other alliance countries.

He was recruited by the Russians in the late 1980s and has been charged in Estonia with supplying information to a foreign power.

Several investigation teams from both the EU and Nato, under the supervision of a US officer, have flown to the Estonian capital Tallinn to assess the scope of what is being seen as the most serious case of espionage against Nato since the end of the Cold War.

“The longer they work on the case, the more obvious it becomes how big the impact of the suspected treachery really is,” according to Der Spiegel magazine. A German official described the Russian penetration of Nato as a "catastrophe".

Comparisons are being drawn with the case of Aldrich Ames, the former head of the CIA counter-intelligence department who was in effect Russia's top agent in the US.

"Simm became a proper agent for the Russian government in the mid-1990s," says the Estonian deputy Jaanus Rahumaegi who heads the country's parliamentary control commission for the security services.

On the face of it, the Simm case resembles the old-fashioned Cold War spy story. He used a converted radio transmitter to set up meetings with his contact, apparently someone posing as a Spanish businessman.

As in the 1950s and 1960s, it seems that the operation was a husband-and-wife team. His wife Heete – who previously worked as a lawyer at the national police headquarters – has also been detained on charges of being an accessory to treason.

Mr Simm was ensnared because of blunders that have dogged modern espionage ever since the KGB first pitted itself against the West. First, he bought up several pieces of valuable land and houses including a farmhouse on the Baltic Sea and a grand white-painted villa outside Tallinn.

Second, his contact officer got careless and tried to recruit a second agent – who reported the incident to the security authorities. That is when the Estonian mole-hunters began to reconstruct the movements of the supposed Spaniard and followed the thread back to the agent inside Nato.

But Mr Simm was not some relic from the days of Kim Philby or other notorious deep-cover agents. He was at the cutting edge of one of Nato’s most important new strategic missions: to defend the alliance against cyber-attack.

Mr Simm headed government delegations in bilateral talks on protecting secret data flow. And he was an important player in devising EU and Nato information protection systems.

Estonia – described by NATO Secretary General Jaap de Hoop Scheffer as "Nato's most IT-savvy nation" – conducts much of its government and commercial business online. People vote and pay their taxes online, government meetings involve almost no paperwork.

As a result, when it angered Russia in 2007, by removing a Soviet war memorial, it became the target of hostile attacks on the internet. Estonia has been lobbying hard to put cyber-defence on the Nato agenda, and has set up a Cyber Defence centre in Tallinn which is supposed to help the Alliance as a whole. Now that project could be compromised.

The other important question in the Simm case is whether he was operating alone. A senior Estonian police officer claimed asylum in Britain in the 1990s reportedly telling the authorities that he was trying to escape pressure from the Russian secret service to sell secrets.

The Russians, it seems, were keen to buy as many place-men as they could: the prospect of Nato forces hard up against the northern Russian border was too alarming for the Kremlin. Moreover, Mr Simm was for many years in charge of issuing security clearance: he could have nodded through other Russian agents.

Mr Simm is likely to be formally arraigned at the beginning of next year after the damage control teams from Nato have completed their work. If found guilty he could face between three and fifteen years in prison. Neither the Simms, nor their defence lawyer, have commented on the charges.

Nato too has refused to say anything. But there is no doubting that the case is a serious embarrassment. And though Russia may have lost an agent – "a gold card operative" according to one Estonian newspaper – it has achieved a tactical victory by sewing suspicion between western Nato members and the new east and central European entrants.

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