Today's decision acts as a test case for a recent memorandum of understanding between the UK and Libya that the north African nation will not mistreat deportees.
Responding to the SIAC's decision to prevent the men from being returned home, a Home Office spokesperson said the department was "very disappointed".
"We believe that the assurances given to us by the Libyans do provide effective safeguards for the proper treatment of individuals being returned and do ensure that their rights will be respected," the representative said.
"We intend therefore to appeal to the court of appeal to seek to overturn this decision."
The Home Office says the men have been found to "represent a real risk to the national security of this country" and insists that it has sought appropriate assurances to ensure their good treatment on deportation.
"We firmly believe that our policy of seeking assurances from other countries in respect of those considered to pose a threat to national security strikes the right balance between safeguarding their rights and enabling us to protect the British public and SIAC has accepted this previously. We shall continue to pursue these policies," the Home Office added.
Britain and Libya signed the memorandum in October 2005 and the UK government has agreed similar arrangements with Jordan and Lebanon.
In response to today's ruling, the shadow home secretary David Davis said that these agreements are "no panacea" to solving the terror threat.
"The government would do well to focus on prevention and prosecution rather than just trying to deport these individuals once they are here," he added.
"They should answer our calls to establish a dedicated UK border police to secure our borders and prevent foreign terror suspects from entering the country in the first place. They should also allow the use of phone tap evidence in terror trials and the interviewing of suspects after charge so that some of these suspects might actually be prosecuted. We would support them in this."
Human rights groups have welcomed the SIAC's decision. Liberty said that the government should "concentrate on eradicating the practice of torture, not extracting incredible paper promises" and Justice added: "A memorandum of understanding with a government that tortures its own citizens is no substitute for the rule of law."
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