Denis Donaldson was cleared last week of spying for Sinn Fein, and his latest admission drew an incredulous reaction from Irish Prime Minister Bertie Ahern.
It could complicate Irish and British efforts to broker the restoration of the power-sharing government in Belfast.
Mr Donaldson, 55, a Sinn Fein member for more than 30 years, told Irish state RTE television that British intelligence had begun paying him in the 1980s after he had compromised himself during a "vulnerable time" in his life.
"I deeply regret my activities with British intelligence and RUC/PSNI (Royal Ulster Constabulary/Police Service of Northern Ireland) Special Branch," said a gaunt-looking Mr Donaldson, reading a statement at a Dublin hotel accompanied by his solicitor.
Mr Donaldson also apologised to his family and the Republican movement.
Sinn Fein President Gerry Adams said earlier that Mr Donaldson had confessed to two Sinn Fein members after police told him his life was in danger.
"He was going to be outed," Mr Adams said.
The admission by Donaldson -- a respected party member who was Sinn Fein's head of administration during the brief life of the now suspended Northern Ireland Assembly -- sent shock waves across the British province and beyond.
It came barely a week after Mr Donaldson and two other men were acquitted of charges of spying for the IRA on the British government at Stormont, the seat of the power-sharing government in Belfast.
The charges were dropped when, due to lack of evidence, the trial was no longer deemed in the public interest.
That spying scandal, known as "Stormontgate", led to the suspension in 2002 of the devolved Northern Ireland Assembly, where power was shared between Protestants and Catholics, and the restoration of direct rule from London.
In his statement Mr Donaldson said: "I was not involved in any republican spy ring in Stormont. The so-called Stormontgate affair was a scam and a fiction, it never existed, it was created by Special Branch."
Mr Ahern, speaking to RTE television from the European Union summit in Brussels, was nonplussed by the developments.
"Stortmongate never made much sense to me and the dropping of the charges made less," he told RTE.
"This is just a bizarre twist. If what we are being asked to believe is that the senior administrator in Stormont turns out to be an agent of the British security services that takes some twist of even my imagination," Mr Ahern said.
In parliament earlier this week, British Prime Minister Tony Blair categorically denied that the decision not to prosecute Mr Donaldson and the other two was politically motivated.
Gerry Adams said he would be shocked if Mr Blair "was part of any plot to take down a power-sharing executive he had spent a considerable amount of time along with the rest of us putting in place."
However, Mr Adams said he had been suspicious at the way Mr Donaldson was acquitted at a special Belfast court hearing along with his son-in-law Ciaran Kearney and another Catholic public servant, William Mackessy.
"The collapse of the power-sharing government was blamed on allegations of a Sinn Fein spy ring at Stormont," Mr Adams said in a statement.
The fact is that this was a carefully constructed lie created by the (British police) Special Branch in order to cause maximum political impact."
Mr Adams blamed the failure of the political institutions, where Catholics and Protestant deputies shared power from December 1999 to October 2002, on those in charge of British intelligence and policing.
"The fact is that the key person at the centre of those events was a Sinn Fein member who was a British agent," Mr Adams said.
Mr Adams said it was too soon to say what the consequences would be in terms of kick-starting stalled talks on restoring a power-sharing government set up under the 1998 Good Friday Agreement, but repeated his commitment to the process.