A pilot who spent nearly five months in jail following false allegations that he was involved in the September 11 terror attacks today lost his High Court battle for the right to seek compensation.

Two High Court judges ruled that the Home Secretary was entitled to exclude Lotfi Raissi, a 32-year-old Algerian, from a Home Office ex gratia compensation scheme for victims of miscarriages of justice.

Lord Justice Auld and Mr Justice Wilkie ruled at London's High Court that Raissi, from Chiswick, west London, had been held in extradition proceedings which were not "in the domestic criminal process" and therefore did not fall within the compensation scheme.

Later, Mr Raissi described the decision as "a body blow".

Mr Raissi, the first person accused of participating in the attacks on the World Trade Centre and the Pentagon, intends to appeal.

He said: "The Metropolitan Police and the Crown Prosecution Service are 'domestic', and they played a key role in the extradition proceedings by wrongly naming me as an international terrorist and by ensuring that I spent almost five months in Belmarsh.

"The court's decision allows the Home Secretary to ignore the part played by those public bodies in ruining my life.

"I have no choice but to keep my faith in British justice and pray that it won't be too much longer in coming."

Mr Raissi was arrested by anti-terrorist Metropolitan Police officers 10 days after 9/11 following an extradition request from the United States while living at Colnbrook, Berkshire, near Heathrow airport.

He was denied bail on the basis of inaccurate claims that he had trained the pilots responsible for the hijackings and the attacks on New York and Washington.

Mr Raissi was seeking compensation, saying that the four-and-a-half months he spent wrongly held at top security Belmarsh prison "ruined" his life. It damaged his reputation, lost him his career and caused him distress and psychiatric injury.

He said: "The reality is that because of my profile of being Algerian, Muslim, Arabic and an airline pilot, I suffered this miscarriage of justice."

Edward Fitzgerald QC, appearing for the pilot, said at a recent two-day hearing that led to today's ruling there was "not a shred of evidence" linking him with the terrorists, and the refusal of bail was "a real injustice" for which he was now entitled to compensation.

But Mr Khawar Qureshi, appearing for the Home Secretary, successfully argued that the Government compensation scheme was never intended to apply in extradition cases, but even if it did Mr Raissi would not have qualified for a payment.