Interviewed by ITN in 2001, Mohammed Junaid Babar insists he would defend Muslims if the US invaded Afghanistan Link to this videoAn American jihadist who set up the terrorist training camp where the leader of the 2005 London suicide bombers learned how to manufacture explosives, has been quietly released after serving only four and a half years of a possible 70-year sentence, a Guardian investigation has learned.

The unreported sentencing of Mohammed Junaid Babar to “time served” because of what a New York judge described as “exceptional co-operation” that began even before his arrest has raised questions over whether Babar was a US informer at the time he was helping to train the ringleader of the 7 July tube and bus bombings.

Lawyers representing the families of victims and survivors of the attacks have compared the lenient treatment of Babar to the controversial release of the Lockerbie bomber, Abdelbaset al-Megrahi.

Babar was imprisoned in 2004 – although final sentencing was deferred – after pleading guilty in a New York court to five counts of terrorism. He set up the training camp in Pakistan where Mohammad Sidique Khan and several other British terrorists learned about bomb-making and how to use combat weapons.

Babar admitted to being a dangerous terrorist who consorted with some of the highest-ranking members of al-Qaida, providing senior members with money and equipment, running weapons, and planning two attempts to assassinate the former president of Pakistan, General Pervez Musharraf.

But in a deal with prosecutors for the US attorney’s office, Babar agreed to plead guilty and become a government supergrass in return for a drastically reduced sentence.

The Guardian has obtained a court document which shows that on 10 December last year – six years after his initial arrest and subsequent guilty plea – he was sentenced to “time served” and charged $500 (£310) by the court in a “special assessment” fee. The document also reveals that Babar had by then spent just over four years in some form of prison and more than two years free on bail.

Graham Foulkes, a magistrate whose 22-year-old son David was killed by Khan at Edgware Road underground station in 2005, said: “People get four and a half years for burglary. They can get more for some road traffic offences. So for an international terrorist who’s directly linked to the death of my son and dozens and dozens of people to get that sentence is just outrageous.”

Fifty-two people were killed and 784 injured on 7 July 2005 when four suicide bombers detonated rucksacks filled with explosives and nails on London’s transport system in the morning rush hour.

The lawyer representing the families of the dead and survivors, Clifford Tibber of the law firm Anthony Gold, said they would be devastated to learn that Babar had served only a small proportion of his possible sentence.

“Babar admitted setting up and funding training camps attended by the 7/7 bombers,” Tibber said. “When the British government released Megrahi, the Lockerbie bomber who received a life sentence, on compassionate grounds after eight years the Americans were furious. Imagine how the bereaved and the survivors will feel about [Babar’s] paltry sentence.”

A remark from the sentencing judge that Babar “began co-operating even before his arrest”, has raised the possibility, supported by other circumstantial evidence obtained by the Guardian, that he may have been an informant for the US government before his detention by the FBI in April 2004.

Babar facilitated the London bombers’ knowledge of bomb-making when he invited around a dozen British jihadists to attend a camp that he had helped set up in north-west Pakistan in the summer of 2003.

In a debriefing with US law enforcement agents in 2004, Babar told US prosecutors about Khan, whom he knew as “Ibrahim”. British terrorism investigators showed Babar an unclear surveillance photo of Khan in August 2004, but Babar failed to identify him.

He has said that when he saw pictures of Khan in newspapers after the bombings he alerted the US authorities straight away: “I told them [the American authorities] that was the person that was Ibrahim. I had mentioned Ibrahim before July 2005.”

After his guilty plea in 2004, Babar spent a good proportion of his four and a half years outside the regular prison system. He flew to testify in trials in the UK and in Canada and met law enforcement officers from around the world.

In 2008 he was granted bail awaiting final sentencing, after being warned by a judge that his conviction on five terrorism offences carried a maximum 70-year term.

Although a probation report dated 9 July 2010 recommended that Babar remain in jail for another 30 years, the US attorney’s office submitted their own report to the New York court, known as a 5K1, which praised Babar’s work.

One extract read out in court stated: “Over the last six and a half years the level of assistance provided by Babar to both the United States government and foreign governments has been more than substantial. It has been extraordinary.”

Speaking in court about Babar’s role in helping to jail British, Canadian and American terrorists, the assistant US attorney Brendan McGuire described Babar’s co-operation as exceptional, and he recommended that he be given a significantly reduced sentence.

Babar’s defence lawyer, Daniel Ollen, told the court that during the two years his client had been out on bail, he had “paid his debt to society” and had settled into a new life with his wife and daughter.

Ollen said the government’s positive statements on behalf of Babar in court spoke volumes about his “hugely successful” actions, and that in 30 years he had never seen a more positive 5K1 report from the government.

Speaking for the first time about the case, Ollen told the Guardian that in court “the government went to bat for him. They used words like ‘extraordinary’ and ‘unprecedented’. Babar’s co-operation really was spectacular when you get down to it.”

When sentencing Babar, the judge, Victor Marrero, praised his work, describing the sentence of four years and eight months as “reasonable and appropriate”.

“The court takes note that the government has evaluated Mr Babar’s cooperation to be significant, truthful, complete, and liable.,” Marrero said.

“[He] worked with the FBI and foreign governments to assist in investigations of terrorism organisations, including al-Qaida, and of terrorist activities such as the London bomb plot.”

“Taking into account the nature and circumstances of the offence and the history and characteristics of the defendant … the court finds that a sentence of time served is reasonable and appropriate and that such a term is sufficient but not greater than necessary to promote the proper objectives of sentencing,” Marrero said.

A law enforcement agent who arrested Babar and spent more than 500 hours debriefing him said he believed Babar was selfish.

The officer, who wished to be known as agent A, said: “Babar wasn’t a hero. He didn’t look at the American flag and suddenly become all patriotic. When his back was against the wall he did what was right for him … he was selfish.”

Further inquiries uncovered allegations from a top US terrorism lawyer who has reviewed sealed evidence in the case which suggests Babar could have been working for the US authorities before his arrest in April 2004.

Having reviewed the court transcript himself, bereaved father Graham Foulkes said: “There’s a hint from one or two of the sentences [in the transcript] that do strongly suggest [Babar’s] co-operation was going well beyond his official arrest. And it looks as if the Americans may well have known in detail what Babar was up to in Pakistan [at the time] and that is a very, very serious matter.”

When judge Marrero’s office was asked to clarify the remarks, his office declined to comment. The US attorney’s office declined to comment on whether Babar had been working with US agencies before his arrest.

The law enforcement officer involved in Babar’s arrest and debriefing also refused to discuss the allegations.

Freed from prison and no longer in the witness protection scheme, it is not known where Babar is currently living. Visiting Babar’s childhood home in the Jamaica area of Queens, New York, the Guardian was told that Babar’s mother was on holiday in Pakistan. The woman who answered the door and identified herself as Babar’s cousin did not know where Babar was living and refused to comment further