Individuals across the UK are being employed on temporary assignments to acquire intelligence on specific targets, The Guardian reported, citing sources within the Muslim community.
One such source said an informant was recently paid as much as 2,000 pounds (over 2 lakh rupees) by the British security services to spy on activities relating to a mosque over a six-week period.
However, the use of payments to gather intelligence prompted warnings that the system risked producing information "corrupted" by the money on offer, the report said.
Its strand known as Pursue has an official remit to "stop terrorist attacks in this country and against our interest overseas. This means detecting and investigating threats at the earliest possible stage".
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The Security Service, commonly known as MI5 (Military Intelligence, Section 5), is the Britain's domestic counter- intelligence and security agency - part of the intelligence machinery alongside the Secret Intelligence Service (SIS; also known as MI6) focused on foreign threats, Defence Intelligence (DI) and Government Communications Headquarters (GCHQ).
The programme is "been driven by the (intelligence) agencies, it's a network of human resources across the country engaged to effectively spy on specific targets. It's decent money," said another source.
However, the use of payments to gather information prompted calls for caution from senior figures in the Muslim community, who warned that such transactions could produce tainted intelligence.
Salman Farsi, spokesman for the East London Mosque, the largest in the UK, said: "We want our national security protected but, as with everything, there needs to be due scrutiny and we need to ensure things are done properly.
"If there's money on the table, where's the scrutiny or the oversight to ensure whether someone has not just come up with some fabricated information? Money can corrupt."
He added: "When they started dishing out money, everyone was willing for a bit of money to dish the dirt, make up stuff. There's good work to be done, but quite frankly you don't need to send in informants to mosques to find out what's going on. We need a fresh approach, genuine community engagement.