The group campaigning to get Tally Ho bomber Jawad Botmeh moved to a low-security prison has claimed his application was refused because of increasing xenophobia against Arabs and Muslims in the UK.

The Freedom and Justice for Samar and Jawad Campaign was pushing for Botmeh to be moved from a category C to a category D prison, where conditions are more relaxed and there is a greater possibility of outside visits. But the group has reacted with bewilderment after the application was unsuccessful. It claims the decision was taken by Simon Barrett, the new head of custody at Rye Hill Prison in Warwickshire, because he was worried about the current political climate.

"He Botmeh has an exemplary prison record, the only thing holding this back is prejudice, so that, of course, is very disappointing for all of us," said Elisa van Waeyenberge, a member of the campaign.

"He has an exemplary custodial record, there are no fears that he will abscond because he has been granted bail in the past. The decision was made on the basis of prejudice which relates to the current political climate."

Botmeh, has served eight years of a 20-year sentence, along with fellow Palestinian Samar Alami, for the 1994 car bomb attacks at the Israeli Embassy in Kensington and at Balfour House in High Road, North Finchley.

Supporters, including MI5 whistleblower David Shayler and high-profile solicitor Gareth Peirce, who came to prominence for winning freedom for the wrongly convicted Guildford Four, claim there was not enough evidence for them to be convicted.

A Home Office spokeswoman said: "People who consider recategorisation requests would take every individual's case on its own merits but I cannot discuss what those individual merits would be."