Binyam Mohamed's case has attracted huge attention
Foreign Secretary William Hague is to order an inquiry into allegations that the UK's security services were complicit in torture overseas.
Mr Hague said the investigation would be "judge-led" and details of it would be announced "pretty soon".
The Conservatives and Lib Dems have long urged an inquiry into claims by UK resident Binyam Mohamed British agents were aware of his torture at US hands.
The former Labour government insists the UK did not use or condone torture.
The UK's human rights watchdog, civil liberties campaigners and two Commons committees have all demanded an independent inquiry into claims Mr Mohamed was tortured, with British knowledge, after his arrest in Pakistan in 2002.
The prospect of an inquiry was not specifically mentioned in the Conservative-Lib Dem coalition agreement published on Thursday, despite pre-election calls by both parties for such a move.
But Mr Hague told the BBC that the new government was committed to getting to the bottom of the allegations by Mr Mohamed and a number of others.
"We will be setting out in the not-too-distant future what we are going to do about the allegations that have been made about complicity in torture," he said.
"So will there be an inquiry of some form? Yes, both parties in the coalition said they wanted that. Now we are working on what form that should take. Proposals on this will follow pretty soon."
In the past the Lib Dems have called for Cabinet ministers, including former prime minister Tony Blair, to explain what they knew about the activities of UK agents and whether they explicitly approved them.
Both former Prime Minister Gordon Brown and ex-Foreign Secretary David Miliband - now a leading contender to be Labour leader - have strongly defended the conduct of the security services, saying they played a vital role in the UK's counter-terrorism strategy.
Speaking in February, Mr Brown said the UK condemned torture "without reservation".
"We do not torture and we do not ask others to do so on our behalf. We are clear that officials must not be complicit in mistreatment of detainees," he added.
Ethiopian-born Mr Mohamed says he was tortured after being held in Pakistan and, subsequently in Morocco and Afghanistan, before being transferred to the Guantanamo Bay detention camp in Cuba.
He claims agents from MI5 knew about this and fed questions to his interrogators through the CIA.
He was freed from Guantanamo last year after charges of involvement in terrorist plots were dropped and says the only evidence against him was obtained through torture.
The Metropolitan Police are investigating the role played by a number of British security agents in his interrogation after a request by the former Attorney General Lady Scotland.