Defence Secretary Des Browne is facing continued criticism after a Government U-turn banned military personnel from selling their stories pending a review.
After several personal accounts from sailors held in Iran for 13 days appeared in the media, Mr Browne conceded the decision to let them speak out had not been a success.
He insisted it had been a "very tough call" for the Navy but everyone involved accepted it had "not reached a satisfactory outcome" and lessons must be learned from the review.
A ban on any Armed Forces personnel selling their stories to the media was introduced last night.
But opposition politicians accused him of acting too late and said the Ministry of Defence had acted "appallingly" in putting its sailors "up for auction".
Shadow defence secretary Liam Fox said: "The whole situation relating to the captive servicemen coming home has been handled appallingly.
"The Ministry of Defence have managed to lose public sympathy for our sailors and Marines, cause division within the ranks of the Armed Forces and serving members of the Armed Forces have, in effect, been put up for auction in the most horribly undignified fashion – something that has not gone unnoticed overseas.
"We will want to know who made these decisions, at what stage and why."
Mr Browne – who had been made aware of the earlier decision – announced the ban in his first intervention in the major row.
It came after a further day of criticism from politicians, military figures, relatives of killed and injured personnel and even one former tabloid editor.
They claimed the individuals were being used as pawns in a propaganda war and warned that the move could set a highly dangerous precedent.
In a statement issued by the MoD, Mr Browne said he recognised the dilemma faced by Navy chiefs in the face of a media hungry to hear the stories of the individuals.
It was "inevitable" someone would have accepted the payments on offer, he suggested, potentially putting both them and operational safety at risk.
So the Navy decided to allow the payments and retain the ability to be involved in the process and offer support to its personnel, he said.
"Many strong views on this have been expressed but I hope people will understand that this was a very tough call, and that the Navy had a duty to support its people.
"Nevertheless, all of us who have been involved over the last few days recognise we have not reached a satisfactory outcome. We must learn from this."
He said the review – announced earlier in the day by the Second Sea Lord, Vice Admiral Adrian Johns – would look at "the consistency of the regulations across the services, their clarity and, more broadly, whether the regulations are right for the modern media environment".
"I want to be sure those charged with these difficult decisions have clear guidance for the future," he said about the review.
"Until that time, no further service personnel will be allowed to talk to the media about their experiences in return for payment."
More of Leading Seaman Faye Turney's story appeared in The Sun today, in which she described feeling guilty for what she had put her family and husband, Adam, through.
She said the thought of her three-year-old daughter, Molly, growing up without a mother had reduced her to tears while she was held captive.
Media sources said the 25-year-old had turned down a £100,000 payout from another media outlet to accept a significantly lower figure from the paper, along with the ITV programme Tonight With Trevor McDonald.
LS Turney told The Sun of her reunion with family and how her biggest concern had been that Molly would have seen her paraded blindfold on TV and been scared.
She said: "We got off the helicopter and I saw Molly crying through a window. I heard her shout 'Mummy, Mummy'.
"Adam had hold of Molly and we ran to each other. We all hugged and I said 'I'm sorry, I'm sorry'.
"I've never been so thankful to see my family. The first thing I told Adam and my mum and dad was that nobody had touched me. I knew that would have been in their thoughts and I wanted to put their minds at rest," she added.
LS Turney also described the lead-up to her release, in which she was given make-up and new clothes before being blindfolded and taken to meet the 14 British servicemen who were taken captive with her.
There was a "stunned silence" when their release was announced by Iranian president Mahmoud Ahmadinejad, before celebrations began, she said.
A percentage of her fee was going to help personnel on her ship, HMS Cornwall, and their families, she said in response to the criticism. The remainder will go into a trust fund for her daughter.
The youngest captive, Arthur Batchelor, sold his account to the Daily Mirror, and described how guards mocked him, calling him "Mr Bean". He said he had cried himself to sleep at night.
Operator Mechanic Batchelor said he feared being sexually abused and even executed.
Among the critics of the decision to allow the stories to be sold is former Sun editor Kelvin MacKenzie, who said he would not have touched the accounts "with a barge pole" and accused the Government of a "catastrophic error".
Major General Patrick Cordingly, who commanded the Desert Rats during the 1991 Gulf War, accused the MoD of using the sailors and Marines as a propaganda tool.
And Reg Keys, whose son, Thomas, was one of six members of the Royal Military Police killed by an Iraqi mob in June 2003, criticised the MoD for double standards.
He refused to blame the sailors for selling out, but said he held those in charge of them responsible for the situation.
He said: "The Government is using them for spin because it suits their requirements… I find that offensive."
Some members of the group gave unpaid interviews to local TV stations and newspapers.
Royal Marine Captain Chris Air, who was in charge of the group when they were captured, defended the right of his comrades to sell their stories.
He said: "They are perfectly entitled to. I think it can be part of the process to get things off their mind."
And Seaman Andrew Henderson, from Wrexham, North Wales, told the Daily Post: "She's got a little girl and that (the money) is going to set her up for life. We all said to her she would be daft not to."
Royal Navy Lieutenant Felix Carman, who also made a statement, said the subject of being paid to speak about the experience was unsavoury. But he said he did not begrudge others making money out of it.
Meanwhile, Iranian television released fresh footage of the sailors and Marines, showing them relaxing and playing table tennis.
The footage appeared designed to refute the accounts of the personnel that they had been held isolated in tiny cells for much of their time in captivity.
Liberal Democrat spokesman Nick Harvey accused Mr Browne of acting too late.
"The review of procedures and ban are welcome but Des Browne's announcement is clearly a case of closing the stable door after the horse has bolted," he said.
"The ban is a complete admission that the Ministry of Defence has completely mishandled the situation.
"There is a story to be told about what happened to the sailors and Marines in Iran, but the release of this information should have been co-ordinated by the Ministry of Defence.
"Leaving the returned captives to handle the pressures of the media alone was a dereliction of the MoD's duty.
"We don't want to see open season for all military personnel selling their story whenever anything eventful happens, but the Government must not now use this ban as an excuse to gag military personnel from normal and helpful discourse with the media."
Photo: Luke MacGregor/Reuters