James Smyth's lawyer claimed the case against him is based on information supplied by Gary Haggarty.
Smyth, 48, is accused of the double killing of Gary Convie and Eamon Fox in north Belfast in May 1994.
He was detained by detectives investigating a campaign of murder and serious crime committed by the Ulster Volunteer Force.
Mr Convie, 24, and Mr Fox, 44, were gunned down as they sat eating lunch in a car at a North Queen Street building site.
Smyth, from Forthriver Link, Belfast, faces further charges of attempting to murder of a third man, Donal Laverty, in the same attack and possessing a Sten submachine gun and ammunition with intent to endanger life.
He was refused bail at Belfast Magistrates' Court due to the risk of interference with witnesses in the case.
Friends and supporters of the defendant packed the public gallery as he was led into the dock. After the alleged offences were put to him, Smyth replied: "Not guilty of all charges."
It emerged during the hearing that he had been a life sentence prisoner released under the terms of the Good Friday Agreement 14 years ago.
A detective sergeant said the defendant's DNA was the major profile found on a coat the gunman is believed to have worn.
A similar match was also recovered from a woollen hat allegedly connected to the investigation, the court heard.
Under cross-examination by defence lawyer John Greer, the detective confirmed other profiles had been retrieved as well.
During a series of exchanges, the solicitor repeatedly referred to 41-year-old Haggarty, a former senior loyalist turned assisting offender.
"The evidence is based on the supergrass Gary Haggarty," Mr Greer contended.
Although the detective replied by stressing the DNA link, he accepted: "There is an assisting offender statement, yes."
Bail was opposed amid claims that Smyth would interfere with the course of justice or interfere with civilian witnesses.
But his lawyer argued that another man already charged with the murders has been released from custody.
Mr Greer revealed the co-accused, Mark Campbell, 42 and of Canning Place in Belfast, was among those in court for the hearing.
Returning to Haggarty's role in the investigation, he claimed the former loyalist has a history of involvement in murder and dishonesty.
Mr Greer produced a document which he alleged "clearly shows police agents or informers were involved in the murder plot".
He added: "They had told their handlers of the presence of these guns in their possession. Police did nothing about that."
Disputing police fears of witnesses being got to, the solicitor stressed how Haggarty is living in a safe location.
Attempting to secure bail for his client, Mr Greer insisted: "The final irony in the case would be if Belfast Magistrates' Court has granted bail to the supergrass who has admitted murders and conspiracies."
But accepting police concerns, District judge Fiona Bagnall ruled there was a likelihood of interference with witnesses.
Smyth was remanded in custody to appear again by video-link next month.
Angry outbursts greeted the decision to refuse bail. Some of the accused's supporters, who also staged a protest outside court, shouted "political policing" and "scum".
Another told the detective: "Don't smile, hang your head in shame."