The Ministry of Justice has lost its court battle against an Algerian pilot falsely accused of training the 9/11 hijackers, his solicitor said.
Lotfi Raissi claimed compensation after he was arrested at his home and held in jail for four-and-a-half months.
Ministers were refused leave to appeal to the House of Lords over the Court of Appeal ruling that Mr Raissi was subject to an "abuse of process".
Mr Raissi could now be in line for a payout of millions of pounds.
In a statement released by his solicitor Jules Carey, Mr Raissi called for a "long awaited apology" from Justice Secretary Jack Straw.
"The Minister of Justice has no more appeals and no more excuses," he said.
"The courts have held that I was the victim of a miscarriage of justice and that the police and CPS played a part in this.
"It is for Mr Jack Straw to accept the decision of the court and to offer me the long awaited apology I have always asked for."
The Court of Appeal ruled in February that minor charges unconnected with terrorism were used to keep Mr Raissi in custody.
The judgment was highly critical of both the Metropolitan Police and the Crown Prosecution Service (CPS). They said the CPS used the extradition proceedings to avoid laws designed to prevent the 33-year-old being kept in prison longer than seven days.
