The veterans minister has been warned by the chairman of the independent inquiry into alleged murders by special forces in Afghanistan of “potentially serious legal consequences” after he refused to disclose names to the investigation.

Sir Charles Haddon-Cave told Johnny Mercer his decision to “refuse to answer legitimate questions … at a public inquiry” were “disappointing … surprising … and completely unacceptable”.

On Tuesday, Mr Mercer repeatedly refused to hand over names of “multiple officers” who told him about allegations of murder and a cover-up during his time as a backbench MP, while giving evidence to the inquiry at the Royal Courts of Justice.

He told counsel to the inquiry Oliver Glasgow KC: “The one thing you can hold on to is your integrity and I will be doing that with these individuals.”

Mr Mercer added: “The simple reality at this stage is, I’m not prepared to burn them – not when, in my judgment, you are already speaking to people who have far greater knowledge of what was going on.”

On Wednesday, the chairman told Mr Mercer “you need to decide which side you are really on” as he criticised the minister’s approach as “a misguided understanding of the term integrity and an inappropriate sense of loyalty”.

Addressing Mr Mercer before he concluded his evidence, Sir Charles said: “As you’ll appreciate, this is not the end of your evidence or indeed your attendance before me because, as Mr Glasgow has had to say, the plain fact of the matter is that you have, at least for the moment, refused to answer legitimate questions by leading counsel at a public inquiry – in particular … ‘what are the names of people who’ve spoken to you about these matters?’

“I’m bound to say, this is frankly very disappointing and surprising for someone in your position and, I’m bound to say, completely unacceptable.

“It gives rise to potentially serious legal consequences which may need to be put in train.”

Sir Charles continued: “I have, I’m afraid, very significant powers under the Inquiries Act 2005 which I would prefer not to have to use.

“But you can be assured Mr Mercer that I will, if necessary.

“My patience is not inexhaustible because I have a public inquiry to run and pursue as quickly as possible in the public interest and the interest of all those who have had allegations made against them or who have a dark cloud sitting over them, their families and their careers.”

After asking the minister to reflect on what he had said, the chairman added: “I’d like this matter addressed very soon – and I mean, very soon.

“To use a phrase you objected to this morning Mr Mercer, and to put it starkly but I think fairly and correctly, you need to decide which side you are really on, Mr Mercer.

“Is it assisting the inquiry fully as Mr Glasgow has said, and the public interest and the national interest in getting to the truth of these allegations quickly, for everyone’s sake, or being part of what is, in effect … a wall of silence – and this wall of silence is obstructing the inquiry and access to the truth.

“And doing so because of, if I may say so, a misguided understanding of the term integrity and an inappropriate sense of loyalty.

“So I’d like you to reflect on all those matters and my legal team will be in touch.”