Eleven of the men – all Pakistani nationals – now face being deported after they were transferred into the custody of the UK Borders Agency.
They were released after investigators spent 13 days searching for evidence following the arrests from a number of addresses in Greater Manchester, Liverpool and Lancashire under the Terrorism Act.
Gordon Brown and Jacqui Smith had previously claimed the operation had uncovered a “very big plot” against the UK, and police chiefs defended their actions yesterday.
However, questions are being asked as to the timing of the raids and the basis for the alleged intelligence of a plot given that no evidence was found.
The operation was run by Greater Manchester Police, together with MI5, but it was ultimately authorised by the then natonal head of counter-terrorism, Scotland Yard Assistant Commissioner Bob Quick.
The raids led to his resignation, after he inadvertently allowed details of the operation to be photographed.
Baroness Neville-Jones, shadow security minister, said: “It is very worrying that, following an investigation based on strong intelligence into what the Prime Minister described as a serious terrorist plot, the police have not been able to present sufficient evidence to the Crown Prosecution Service on which it could lay charges against any of the twelve arrested. This is bound to give rise to questions about the procedure followed.
“The most powerful deterrent to terrorism this country possesses is successful prosecution and imprisonment of terrorists.”
Inayat Bunglawala, a spokesman for the Muslim Council of Britain, said: “Instead of releasing them with good grace and making clear a mistake has been made, the government is seeking to deport them, citing a very vague national security threat. That is a very dishonourable way of proceeding.”
Police were hoping to find further information from the men’s computers and searches of their homes.
There was a fear that the men could have smuggled bomb-making equipment into Britain and could be set to launch suicide attacks.
The investigation, which had been running for some time, was based on intelligence gathered from Pakistan and another alleged cell, arrested in Belgium.
It gathered pace in recent weeks with the arrival of a number of men from Pakistan who were put under surveillance and seen visiting shopping centres and second hand car dealers.
The police and MI5 worked closely on the case and had no option but to move in and arrest the men, according to an experienced security source, familiar with the case.
In a press conference, Peter Fahy, the chief constable of GMP, denied that there had been a dispute with the security services or that bringing the arrests forward by up to 12 hours had disrupted the investigation.
“These people are innocent and they walk away … there are constant threats to this country but we totally respect the situation, we respect that they are innocent until proved guilty,” he said.
He added: “I have not conducted any speculation. I do not feel embarrassed or humiliated by what we have done because we have carried out our duty. I don’t think a mistake has been made at all.”
Sir Paul Stephenson, the head of Scotland Yard, also defended the decision to launch the raids.
“I am satisfied that the action taken was the right action to be taken,” he said.
The men are likely to remain in Britain as they launch a long fight against their deportation on the grounds they could be tortured if they are returned to Pakistan.
Baroness Neville-Jones added: “The Conservative party has called on the Government to increase the range of evidence admissible in court in terrorist cases to include that derived from intelligence sources which would help underpin a greater number of successful prosecutions.”