A veteran Sinn Fein figure expelled from the party has said he was a British agent for two decades.
Mr Donaldson (front) appeared at a party news conference last week
Denis Donaldson headed the party's administration office at Stormont before his October 2002 arrest over an alleged spy ring led to its collapse.
Mr Donaldson said he was recruited in the 1980s as a paid agent and deeply regretted his activities.
Sinn Fein leader Gerry Adams claimed he was about to be "outed" by the same "securocrats" who set him up as a spy.
Northern Ireland's power-sharing executive collapsed in October 2002 following the arrests of three men, including Mr Donaldson. All charges against them were dropped "in the public interest" last week.
Mr Donaldson's admission will further infuriate unionist politicians who were already angered by the decision to drop charges against the three. They believe the government is not telling the whole truth about the affair.
Democratic Unionist MP Jeffrey Donaldson called on the government to "come clean", and told the BBC there needed to be a full public inquiry if political confidence was to be restored in Northern Ireland.
In a statement to Irish broadcaster RTE on Friday, Denis Donaldson said: "I was a British agent at the time. I was recruited in the 1980s after compromising myself during a vulnerable time in my life.
"Since then I have worked for British intelligence and the RUC/PSNI Special Branch. Over that period, I was paid money."
Mr Donaldson said the "so-called Stormontgate affair" was "a scam and a fiction invented by (police) Special Branch".
The government said on Friday that the Stormont raid more than three years ago was solely to prevent paramilitary intelligence gathering.
SEQUENCE OF EVENTS
4 October 2002: Three men arrested following raid on Sinn Fein's Stormont office. Power-sharing executive collapses and government restores direct rule to NI a week later
8 December 2005: Charges against three men dropped "in the public interest"
16 December 2005: Sinn Fein says Denis Donaldson was a "British agent" and expels him from the party: he later says he worked as a spy since the 1980s
Government and police reject the party's claim raid was politically motivated
The Northern Ireland Office said it "completely rejected any allegation that the police operation in October 2002 was for any reason other than to prevent paramilitary intelligence gathering".
It said "the fact remains that a huge number of stolen documents were recovered by the police".
At a news conference on Friday, Mr Adams claimed Mr Donaldson had been approached by police officers earlier this week and told he was about to be "outed" as an informer.
He said Mr Donaldson was not under any threat from the republican movement.
Police sources earlier reiterated that the "Stormontgate" affair began because a paramilitary organisation was involved in the systematic gathering of information and targeting or individuals.
Irish Prime Minister Bertie Ahern said earlier that if "one of Sinn Fein's top administrators in Stormont turns out to be a British spy, this is as bizarre as it gets".
The BBC understands that the mole whose information prompted the Stormont raids was not Denis Donaldson, nor was it the other two men against whom the charges were dropped.
DUP leader Ian Paisley said there "must be no attempt at further cover-up".
"The democratic right of the people to be informed must be honoured," he added.
Last week, the Director of Public Prosecutions would not be drawn on why the charges were dropped, only saying that it was "in the public interest".
Other parties have demanded that Northern Ireland Secretary Peter Hain or Attorney General Lord Goldsmith must clarify what were these public interest reasons.
The three men were arrested following a police raid on Sinn Fein's offices at Parliament Buildings on 4 October 2002, when documents and computer discs were seized.
Following the arrests, Ian Paisley's Democratic Unionists and the Ulster Unionists, led at that time by then First Minister David Trimble, threatened to collapse the executive with resignations.
The British government then suspended devolution in the province, embarking on direct rule for the last three years.