Brendon Fearon was hit in the groin

The proposal, made in a letter from Brendon Fearon's solicitors to Martin's legal team, is conditional on the Norfolk farmer agreeing to drop his counterclaim for damages he suffered during the break in.

Malcolm Starr, who campaigned for Martin's release from prison, said the farmer was likely to agree, although he had not yet studied the offer in detail.

"Tony has always said that he would fight this all the way rather than allow Fearon to get any money, but I think he would accept this offer.

'Stupid situation'

"Personally, I would have liked to see it go to the High Court to put the government under pressure because of the stupidity of the situation.

"I'm angry that public taxpayers' money has been used to fight Mr Martin from somebody who perpetrated the crimes in the first place," he added.

Fearon, of Newark, Nottinghamshire, is seeking up to �100,000 compensation from Martin over the injuries he sustained.

As well as counterclaiming for damages, Martin is also planning to challenge Fearon's right to legal aid.

Mr Starr said part of Fearon's proposal was that money raised for Martin's legal fees should instead be given charity.

Tens of thousands of pounds has been raised by a national newspaper for Martin's legal fund.

Widespread criticism

There were calls for changes in the law to prevent criminals benefiting from their crimes after it was revealed that Fearon was mounting a bid for compensation.

Martin, 58, shot and wounded Fearon in August 1999 when he confronted him and his accomplice, 16-year-old Fred Barras, at his farm in Emneth Hungate, Norfolk, late at night.

Barras was killed and Fearon, who is now 33, was injured in the groin.

Martin was originally convicted of murder and jailed for life, but that conviction was reduced to manslaughter on appeal and Martin was given a five- year sentence.