A key government plan to crack down on Britain’s gang culture by granting anonymity to threatened witnesses was in disarray last night after top judges ruled that such protection could make a trial unfair.

Five law lords quashed a double murder conviction, secured after witnesses who feared for their lives gave evidence anonymously. The law lords ruled that defendants had a right to confront their accusers – and that ministers would have to legislate if they wanted to extend anonymity.

Iain Davis, jailed in 2004 for murdering two men at a New Year’s Eve party in Hackney, East London, can now seek to have his conviction quashed. The law lords’ ruling deals a severe blow to plans by Jacqui Smith, the Home Secretary, to extend anonymity protection to witnesses giving evidence against gang members.

It also undermines proposals set out yesterday by Louise Casey, former head of the Government’s antisocial behaviour unit, calling for extending court anonymity to elderly and disabled victims of crime.

Lawyers said that the ruling could deter witnesses from coming forward where they perceived that they were at risk of violence. It does not affect the ability of vulnerable witnesses, such as children, to give evidence from behind screens or via live videolink, nor the anonymity granted to rape victims, who will be seen by a defendant but will have their anonymity protected outside court. The Metropolitan Police expressed concern about how the ruling could hit trials involving knife and gun crime and organised crime. John Yates, deputy assistant commissioner, has written to justice ministers as well as the Attorney-General to see what “legislative action” could be taken to counter the ruling.

The Ministry of Justice and the Crown Prosecution Service said that they were studying the judgment and would consider its implications. One ministry source said: “It is not looking very good for us.”

In yesterday’s case before the law lords, seven witnesses had claimed to be in fear of their lives if it became known that they had given evidence against Davis.

Three witnesses identified him as the gunman. Davis claimed that he was the victim of false accusations from a jealous former partner but the defence could not be put to the jury – so as to protect the witnesses’ identities.

Lord Bingham of Cornhill, the senior law lord, said that it was a “long-established principle of the English common law” that, subject to some exceptions, an accused should be confronted by his accusers so that he was able to “cross-examine them and challenge their evidence”. Malcolm Swift, QC, for Davis, said that the ruling could deter witnesses from coming forward. “The House of Lords has reasserted a common-law principle that has existed for centuries, going back to Norman times, that a defendant can cross-examine those giving evidence against him,” he said.

The ruling did not affect the anonymity of witnesses in sex offence cases because defendants would know who their accuser was, Mr Swift added. “The ruling does not say that these people cannot be protected from publicity – just that the accused must know who they are.”

Special measures allowing child and vulnerable witnesses to give evidence from behind screens or via live links or videotape have been available under the Youth Justice and Criminal Evidence Act 2002. In other areas, such as serious crimes, case law allows for anonymous witnesses. Any decision as to how and when to use the measures are at the judge’s discretion.

In yesterday’s case, the trial judge, Judge David Paget, QC, had allowed the seven witnesses anonymity to persuade them to give evidence – without which Davis would not have been convicted.

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