Officials also acknowledged that private meetings with Mr Spicer, the head of the Sandline, had allowed him to falsely claim that he was acting with Foreign Office support.
They also strongly criticised the conduct of the British High Commissioner in Sierra Leone, Peter Penfold.
Craig Murray, the second-in-command in the FO's equatorial Africa department, said he felt Mr Penfold had gone too far in recommending that President Kabbah, Sierra Leone's democratically elected leader, should enter into a contract with Sandline to removed the junta that deposed him.
British policy in had been to seek a peaceful resolution to the crisis, Mr Murray said.
The Commons Foreign Affairs Committee heard Mr Murray's evidence as they continued their investigating into the affair, which centres on allegations that UK Government approval was given to a UN sanctions busting arms shipment to Sierra Leone.
This was made by Sandline as part of an effort to re-establish President Kabbah to power.
'Look him in the eye'
Speaking about Mr Penfold's relationship ship with Sandline, Mr Murray said: "My view was that the department should not be continuing this rather hole in the corner method of continual telephone communication with Mr Spicer but not speaking to him [face to face].
"I wanted to meet him, look him in the eye and see if he was the sort of person we should have contact with or not.
"And if I decided he was not the sort of person we should have contact with discontinue the contact."
Mr Murray added that after meeting Mr Spicer, who appeared before MPs last week, he found him "extremely difficult to pin down and shifty".
He said he had been unable to establish who owned Sandline and who would benefit from its effort to re-establish president Kabbah in power.
He advised the departments under his control "not to keep contact with him".
Concerns about Penfold
Mr Murray said he raised his concerns about the actions of Mr Penfold and had been told by FO Africa director Richard Dales that Mr Penfold had a "tendency to freelance".
When he was challenged about his advice to President Kabbah, Mr Penfold had claimed he was acting in a "personal capacity", Mr Murray added.
During his evidence, Mr Murray claimed he had been "set up" by Sandline boss Lieutenant Colonel Tim Spicer, who had been able to use his contacts with the Foreign Office to escape prosecution by Customs and Excise.
Courage of convictions
He also admitted that he had not passed on a crucial memorandum by Mr Penfold, admitting he had advised President Kabbah to sign an arms deal with Sandline, because he did not want to "shop" a colleague.
"I should have had the courage of my convictions and put it on the fax to Customs," he said.
Mr Murray's immediate superior also told MPs how she had met Mr Penfold and put it to him that he had acted contrary to government policy.
Ms Grant said that they had had a "heated and lengthy debate" in which she made clear that it was not acceptable for Mr Penfold to give advice to President Kabbah on a personal basis.