Mr Murray said he was surprised to be told the policy had changed
The UK government is helping create a "market for torture" by accepting intelligence gained by the practice, a former diplomat has told MPs and peers.
Former ambassador Craig Murray said he was told in 2003 the then foreign secretary Jack Straw had authorised acceptance of such intelligence.
He said it was "schizophrenic" to condemn torture but use its "fruits".
The government says it abhors torture but has said intelligence of threats to life cannot be completely ignored.
Giving evidence to the joint committee on human rights, Mr Murray, the former ambassador to Uzbekistan said he believed the government did "everything possible to disguise its position" on torture.
He said responses to concerns were always met with the the reply "we condemn torture unreservedly" but added: "The government doesn't come forward and volunteer the fact that it very happily accepts ... hundreds of pieces a year of intelligence that has come from hundreds of people suffering the most vicious torture."
Mr Murray told the committee he had been surprised to learn that the policy on accepting intelligence gained by torture had changed.
He said during a previous job before the first Gulf War he had been given "clear direction" from the then PM Margaret Thatcher "that we were not to use any intelligence which may have come from torture".
So when he raised concerns in two telegrams, at the end of 2002 and beginning of 2003, that Britain might be acting illegally he said he believed the Foreign Office did not know it was using information gained by torture.
He said he never received a written reply refuting his allegations but was called to London for a meeting with officials including Sir Michael Wood - then legal adviser to the Foreign Office.
"I was told: These things are best not put in writing," Mr Murray told the committee.
"I was told directly: This is the policy, you are a civil servant. You must follow it and we will accept intelligence that has come from torture as long as we don't do the torture ourselves," he said.
'Market for torture'
No British agents were directly involved with torture and he had thought no CIA agents were involved either - but they used information gained by the Uzbek security services, who routinely used the "most horrible forms of torture" against political dissidents in Uzbekistan, the committee was told.
He added that 95% of intelligence gathered was to do with internal Uzbek politics and much of it was inaccurate.
He said the legal position outlined to him was that receiving information was not in breach of the UN Convention on Human Rights - as long as Britain was not carrying out torture.
"I would argue that what you are doing is creating a market for torture," he said.
"We are talking about people screaming in agony in cells and our government's willingness to accept the fruits of that."
He accused the government of a "schizophrenic" policy on torture, on one hand saying they "unreservedly" condemn it but on the other hand being prepared to receive its products.
And he said it was difficult to criticise the policy at the time - in the build up to the war in Iraq - because there had been a "vogue for false intelligence".
He said he believed the policy had changed after the 11 September 2001 attacks on the US - possibly when the UK became aware that the US was using "water boarding" techniques.
The session was briefly interrupted by someone in the audience who shouted demands for a general election before being escorted away.
The Foreign Office removed Mr Murray from his post in Uzbekistan in 2004. He made similar allegations against Jack Straw in a book, and stood unsuccessfully against him in his Blackburn constituency in 2005.
A Foreign Office spokesman said: "The UK unreservedly condemns the use of torture. The UK abides by its commitments under international law and expects all countries to comply with their international legal obligations.
"The British government, including the intelligence and security agencies, never uses torture for any purpose, including obtaining information. Nor would we instigate others to do so."