The Treasury is reviewing its processes amid reports it helped a Russian warlord circumvent UK sanctions to take a British journalist to court.

Exchequer Secretary James Cartlidge said he would not comment publicly on the case of Wagner Group boss Yevgeny Prigozhin but confirmed a review is under way on its decision-making.

It follows reports by media website openDemocracy that a Treasury team issued licences to allow lawyers to help Mr Prigozhin launch legal action against a Bellingcat journalist in the UK in 2021 while the Russian oligarch was subject to sanctions.

The Government appears to have granted a waiver for a warlord that enabled him to launch a legal attack on a British journalist

Mr Cartlidge said the Treasury’s Office of Financial Sanctions Implementation (Ofsi) follows a strict set of rules “for strong constitutional reasons” when granting sanctioned individuals permission to bring lawsuits, because “everyone has a right to legal representation”.

Labour said the Government’s had given a “waiver for a warlord” to pursue legal action, which it said was designed to intimidate critics of Mr Prigozhin.

Several MPs also asked the Government to proscribe the Wagner Group as a terrorist organisation.

Mr Cartlidge, replying to an urgent question, told the House of Commons: “It is a longstanding custom that the Government does not comment publicly on individual cases.

“It would not be appropriate to break this custom even in a case as serious as this where there is obviously public interest.”

Of course you have right to representation if you are defending yourself in court. There is no fundamental right to use legal representation to destroy somebody else or shut down free speech

Mr Cartlidge outlined the approach of Ofsi, saying: “Applications are assessed solely on a costs basis, and as a country with checks and balances it is right that the relevant court should decide the outcome of the substantive merits of a case rather than the Government.

“However, I can confirm, in light of recent cases and related to this question, the Treasury is now considering whether this approach is the right one, and if changes can be made without the Treasury assuming unacceptable legal risk and ensuring that we adhere to the rule of law.”

He added that Prime Minister Rishi Sunak had no part in considering whether Mr Prigozhin should be granted permission while he was chancellor.

Shadow foreign secretary David Lammy said: “The Government appears to have granted a waiver for a warlord that enabled him to launch a legal attack on a British journalist.

“This is a perfect example of a Slapp (strategic lawsuit against public participation) lawsuit, designed to silence critics through financial intimidation.”

Even at the Nuremberg trials, people who had committed the most heinous crimes in the history of the western world were legally represented

Alicia Kearns, Conservative chairwoman of the Foreign Affairs Committee, urged the Government to “commit to looking at whether we need to introduce ministerial oversight” on the process.

Conservative former cabinet minister David Davis added: “Of course you have right to representation if you are defending yourself in court. There is no fundamental right to use legal representation to destroy somebody else or shut down free speech.”

Mr Cartlidge replied: “I do think that the right to legal representation is a fundamental tenet of our democracy and that can mean that individuals and persons who we – and I’m not commenting on the specific case – but it can mean that individuals and persons who we find distasteful therefore have a right to legal representation.

“Let’s not forget, even at the Nuremberg trials, people who had committed the most heinous crimes in the history of the western world were legally represented.”

Labour former minister Liam Byrne said: “The minister has just confessed to the House that sanctions implementation is out of ministerial control and the result of that was a waiver was issued to a warlord to sue an English journalist in an English court.

He signed off money for a warlord to prosecute an English journalist in an English court to undermine the sanctions regime that he himself is responsible for. This is outrageous

“We sanctioned Prigozhin because he was operating ‘a deniable military capability for the Russian state’. Ten months later civil servants under his control signed off £3,500 for business class flights, £320 for luxury accommodation at the Grand Hotel Europe Belmond, £150 for subsistence and more.

“Let’s be very clear about what the leaked emails from that conversation show. They show that Prigozhin’s lawyers wanted to sue Eliot Higgins and Bellingcat ‘because public rebuttal of the article is one of the reasons for his sanctions designation’.

“He signed off money for a warlord to prosecute an English journalist in an English court to undermine the sanctions regime that he himself is responsible for.

“This is outrageous, it’s got to change and it’s got to change now.”

Mr Cartlidge insisted he did “not in any way confess that ministers have no control over the sanctions regime”, before restating that senior civil servants routinely took decisions through a delegated framework on the matters under discussion.

Liberal Democrat foreign affairs spokeswoman Layla Moran said of the Wagner Group: “They should be proscribed quickly. Today is President Volodymyr Zelensky’s birthday – what a better gift we could give him.”

Conservative former minister Sir James Duddridge said the Government’s response to the Wagner Group had been “inadequate” as he called for it to look at proscribing the organisation.