The CIA enlisted the infamous security company Blackwater in a secret programme to track down and kill al-Qaida leaders, US intelligence sources confirmed today.

Blackwater staff, many of whom are former members of US special forces and former members of the CIA, were recruited in 2004 as part of the programme, estimated to have costs millions of dollars. No raid to capture or kill al-Qaida leaders was ever carried out and the programme was closed down this year.

But the employment of Blackwater raised new questions about the legality of the CIA's behaviour during the Bush administration and about the agency's widespread use of outside contractors. There is also an issue over whether the covert programme was deliberately kept hidden from Congress.

The CIA today refused to discuss the involvement of Blackwater but did not deny it either. George Little, a CIA spokesman, acknowledged that there had been a counter-terrorism effort and it amounted to "much more than a PowerPoint presentation".

The New York Times, which broke the story, said it was unclear whether Blackwater had been engaged to carry out assassinations or simply to help with intelligence-gathering, planning and training.

General Michael Hayden, the director of the CIA from 2006 to this year, today defended the use of outside contractors, saying the agency used "whoever was best suited for the job". Speaking at a press conference in Washington, he denied that contractors had been used so the CIA could avoid blame. "We do not go outside the agency in order to deflect responsibility," he said. "Period."

Without going into the specifics of Blackwater's involvement, Hayden played down the significance of the programme, saying that if he had regarded it as important, he would have briefed Congress. He insisted he had never been asked by former vice-president Dick Cheney to withhold information from Congress.

Hayden was adamant that the CIA did not carry out assassinations but, when asked if killing al-Qaida leaders amounted to assassination, he said: "No. That is killing in self-defence."

The CIA has been banned from carrying out assassinations since 1976 after a series of Congressional hearings into targeted killings in Vietnam and Latin America, including 26 attempts on Fidel Castro.

Tim Shorrock, author of Spies For Hire: The Secret World Of Intelligence Outsourcing, expressed concern that private contractors could have been used by the CIA as a way to evade responsibility. He said: "There is no accountability for contractors. We have seen it time and again with Blackwater."

He added that Congress has been trying for years to get the CIA to release the names of the private contractors it uses. His estimate is that the CIA outsources 70% of its work, but the agency says that more than 90% of its core activities are carried out by permanent staff, with contractors engaged mainly in support and logistical work.

Blackwater, which first started working for the CIA in various roles a few days after 9/11, was banned from Iraq after a 2007 massacre of civilians involving its staff. It has since changed its name to Xe Services. The company could not be contacted today for comment.

The new CIA director, Leon Panetta, chosen by Barack Obama, raised the alarm in June when he went to Congress to report that he had just heard about a previously unreported covert operation, without naming Blackwater. The House of Representatives intelligence committee is investigating why the CIA withheld the information.

Earlier this week, there was a report on the Daily Beast website suggesting that Panetta had overreacted and that the secret programme amounted to no more than a PowerPoint presentation.

Without specifically mentioning Blackwater, Little said: "Director Panetta thought this effort should be briefed to Congress, and he did so. He also knew it hadn't been successful, so he ended it. Neither decision was difficult. This was clear and straightforward."

Little dismissed the report that the programme amounted to little more than a PowerPoint presentation: "Director Panetta did not tell the committees that the agency had misled the Congress or had broken the law. He decided that the time had come to brief Congress on a counterterrorism effort that was, in fact, much more than a PowerPoint presentation."

The CIA is braced for further headlines on Monday when a previously unpublished internal investigation into its interrogation techniques during the Bush administration is scheduled to be published. Hayden said that there were several paragraphs in the report that will show that valuable information about al-Qaida was gained through interrogation, and that would help put the criticism in perspective.