The Co Derry village of Greysteel feels "let down" by the state following claims that Torrens Knight was paid by Special Branch after his released from prison, a community leader has said.
Knight, earned notoriety when he was convicted of the Greysteel murders, regarded as one of the worst atrocities of the Troubles.
With Geoffrey Deeny and Stephen Irwin, Knight was sentenced to life in prison for the murder of eight people on Halloween night 1993.
On the main Derry to Limavady road, Greysteel is a small village overlooking Lough Foyle.
Catholics and Protestants live in harmony. It is well-known for its Sunday morning car boot sale and Faughanvale GAA club, some of the members of which double up with local cricket teams in the summer.
The Rising Sun bar owned by the Moore family has always been frequented by people from both communities.
On Halloween night 1993, just a week after the Shankill bomb, people were starting to drift in for the evening's entertainment when three UFF gunmen arrived.
One callously said "trick or treat" and when a young woman said "that's not funny," he shot her. They then proceeded to shoot another 19 people. Seven died almost instantly while another died later.
Those killed, who included Catholic and Protestant, were: Steven Mullan (20), Karen Thompson (19), James Moore (81), Joseph McDermott (60), Moira Duddy (59), John Moyne (50), John Burns (54) and Victor Montgomery (76).
According to John F McElhinney, a community worker in the town at the time, yesterday's (Thursday) news that Knight was a paid British agent has not only shocked but "saddened" the people of Greysteel.
Mr McElhinney, who last year became a Sinn Féin councillor, said: "It looks like he was an agent in 1993. This raises a lot of questions.
"What can anybody think?"
He added that while everyone was aware of the use of agents and of security work, it was still a great shock to the people of Greysteel to learn that someone who caused so much hurt to the village was in the pay of the state.
"I think most people here think the state has let down the people of Greysteel," he said.
East Derry Sinn Féin assembly member Francie Brolly said Knight's payment would be particularly hurtful to the people of Greysteel.
He said Greysteel was an "innocent" town where people were willing to accept the police and accept that the state would protect them.
Mr Brolly said the fact that one of the killers was paid on his release from prison would be difficult for many in the town to accept.