New evidence has emerged to suggest that an undercover police officer set fire to a high street department store while posing as a committed animal rights activist, causing damage worth £340,000, a public inquiry has heard.

The accusation against Bob Lambert, who also fathered a child while undercover and later became a senior police officer, is contained in testimony from one of the conspirators in the arson plot.

At the undercover policing inquiry on Wednesday, Paul Gravett, an activist, admitted for the first time that he was part of the coordinated plot, even though he has never been prosecuted for his role in it.

Gravett has been given immunity from future prosecution in exchange for describing the alleged involvement of Lambert in the clandestine plot to set fire to Debenhams stores in protest against the fur trade in 1987.

Questions had previously been raised in parliament about Lambert’s involvement in the arson attack – which he has always denied. Gravett’s testimony, after years of silence, has been described by David Barr, the inquiry’s barrister, as “particularly striking”.

Four other witnesses have alleged to the inquiry that Lambert participated in the conspiracy.

One of the inquiry’s most significant tasks is to decide whether Lambert, while a police officer, caused huge criminal damage to a well-known high street store. Insurers calculated in 1987 that the fire caused £340,000 of damage.

The inquiry, led by the retired judge John Mitting, is examining the conduct of about 140 undercover police officers who spied on more than 1,000 political groups over more than four decades.

Lambert is a key, and controversial, figure in the covert operations. He fathered a child with an activist, known as Jacqui, during his covert deployment, then disappeared from her life and left her to bring up their son alone. Jacqui discovered the truth more than two decades later, leaving her devastated and traumatised.

While undercover in the 1980s, Lambert had at least three other intimate relationships with women without disclosing that he was part of a secret Scotland Yard unit that infiltrated political campaigns. Lambert’s managers saw his deployment as an outstanding success: he was awarded a commendation for gathering information to arrest campaigners.

In the 1990s, he helped run the secret unit while many of its undercover officers deceived women into relationships.

Gravett described Lambert as a credible spy who could be charming. He said he and other activists never doubted Lambert’s campaigning credentials as he had carried out other criminal acts to promote the Animal Liberation Front.

Gravett said that in spring 1987 Lambert instigated the plot by proposing that the activists escalate their protests on a “vastly different scale”.

Lambert, Gravett, and two other activists – Geoff Sheppard and Andrew Clarke – decided to place incendiary devices in four Debenhams stores in and around London, with the aim of triggering the sprinkler system and flooding the stores, he said.

The idea was to place the devices in the stores just before closing time and use timers to ignite them hours later.

Gravett testified that at midday on Saturday 11 July 1987, he went to a house in Haringey, north London to pick up the incendiary devices. He said Lambert collected two devices along with himself, Sheppard and Clarke, and they each left to plant them at their designated store. Lambert was allocated the branch of Debenhams in Harrow, north-west London, Gravett said.

Gravett said his target was the branch in Reading. But his train from London was delayed. He alleges that because he realised he would not get there before the branch closed, he threw his devices into a canal.

At another store, in Luton, the sprinkler system had been turned off to be repaired so the fire was not doused. The damage to that store was calculated to be at least £6m.

Lambert is credited by his bosses as the source of the information that later led to the arrests of Sheppard and Clarke, who were jailed. Sheppard previously told the inquiry Lambert was integral to the plot and set fire to the Harrow branch.

Lambert is due to give evidence to the inquiry in December.