Real IRA leader Michael McKevitt has been given the go-ahead in the High Court to challenge a government donation to the Omagh bomb victims.
Michael McKevitt was jailed for 20 years
Mr Justice Weatherup granted him leave to apply for a judicial review of the decision to help finance a civil claim against McKevitt and four other men.
The government gave the Omagh relatives almost £750,000 to sue them for £14m.
The judge said there seemed to be an arguable case over the way the power to fund the Omagh relatives was exercised.
McKevitt, 54, from Blackrock, County Louth, is serving a 20-year sentence in Portlaoise for running the Real IRA, the organisation which carried out the 1998 Omagh bombing, which killed 29 people and unborn twins.
He and four other people in the Republic of Ireland - Seamus Daly, Seamus McKenna, Liam Campbell and Colm Murphy - are being sued.
It is hoped to fix a date for the hearing before the end of the year but more delay could be caused by Murphy's re-trial in Dublin on a charge of plotting the Omagh attack.
McKevitt's case against the Lord Chancellor and the Legal Services Commission - formerly the legal aid department - was based on "inequality of arms" after his claim for £1m in legal aid was turned down.
Counsel for McKevitt said more than £400,000 of the £742,702 provided by the Lord Chancellor had already been paid out to legal representatives of the Omagh families.
Crown prosecution opposed the granting of leave because of the delay in bringing the matter before the court.
He said the Lord Chancellor's announcement was made in February, 2004, which was way beyond the normal time limit of three months.
Mr Justice Weatherup said he was extending the time limit because of delay caused by McKevitt's own judicial review over the refusal of legal aid and the fact that contact with his lawyers had been inhibited because of his incarceration.
The judge said the full application for a judicial review would be heard on 21 June.