The defence secretary says he takes full responsibility for decisions which allowed the 15 sailors and marines held by the Iranians to sell their stories.
Des Browne, speaking for the first time since the row, said with hindsight he could have done things differently and said "ultimately, the buck stops here".
It was only after the stories sparked a backlash that he banned further sales.
Tory leader David Cameron called the initial decision "calamitous". Lib Dem Chris Huhne said it was a "shambles".
The decision to let the crew sell their stories has also been widely questioned by ex-soldiers and some of the relatives of soldiers killed in Iraq.
Mr Browne, in his first interview since the row erupted over the weekend, said he had been asked on Friday "to note" the navy's decision to allow the freed personnel to sell their stories.
He said he, and the navy, were "not content" with the decision but felt they had little choice, given that the stories had to be told in the freed captives' own interests "to counteract the propaganda the Iranians had put out using them".
The view the navy took, following "analysis of regulations", was that given the stories would have to be told, the people concerned could not be prevented from being paid.
But, the MP for Kilmarnock and Loudoun added, after further discussions with officials on Monday his view of whether the selling of stories could be banned changed, he said.
This meant, referring to his earlier decision to give the go ahead, "clearly with hindsight... I could have made a different decision".
Mr Cameron responded to Mr Browne's statement by saying there should be a full Ministry of Defence inquiry, to allow lessons to be learned.
He also said there were more questions to be answered about whether the prime minister had any role in the "dreadful decision" to allow the military personnel to sell their stories.
The government's "cheap and tatty" focus on short term headlines could cause long-term damage to the armed forces, and he said the buck stopped with the prime minister.
For the Liberal Democrats Chris Huhne said the armed forces wanted capable and competent leadership, but it had been a "complete mess up".
He said: "The fact that both Des Browne and the prime minister were informed about this and that their alarm bells were not ringing about the implications for example, for people in armed services who have been injured, people in the families of service personnel who've had people killed on active service... does seem to me extraordinary."
Arthur Batchelor, 20, the youngest of the British sailors to be held captive, told the Daily Mirror about his "nightmare" at the hands of his captors - and how they likened him to Mr Bean.
And Leading Seaman Faye Turney sold her story to ITV1's Tonight with Trevor Macdonald and the Sun newspaper - reportedly for a six-figure sum, some of which will go to navy families.
Leading Seaman Turney defended her decision to sell her story and said a percentage of the money would help the crew and families of HMS Cornwall.
"I want everyone out there to know my story from my side, see what I went through," she told ITV's Tonight programme.
The Royal Navy crew were on patrol boats in the Gulf on 23 March when they were detained by Iran's Revolutionary Guard.
The Iranians accused the crew of straying into its waters - the British say they were in Iraqi territory.
Mr Browne said he wanted to make a statement to the House of Commons on Monday.