Mariam Aziz, the former royal consort, has launched a multi-million-pound High Court claim against Fatimah Kumin Lim, claiming she sold the jewels to settle her gambling debts.
She has accused Ms Lim, a 34-year-old former badminton champion, of stealing a diamond bracelet worth £3.5m, and two diamond rings worth £8.7m in 2008 and 2009.
The court heard evidence from Mrs Aziz's adopted daughter, who claimed Ms Lim tricked her into lending her the jewels and said she had trusted her like a "best friend".
Max Malin, representing Mrs Aziz, told the court the former bodyguard had "confessed" to taking the gems from her employer's £1.7m home in Pembroke Gardens, Kensington.
In her defence, Ms Lim claims the confession was "forced" out of her under questioning by police in Brunei and that she had been instructed by Mrs Aziz, 55, to sell the diamonds.
She says she was told to use the money to pay off gambling debts which, she claims, had been built up by the former royal in her bodyguard's name.
Mrs Aziz's adopted daughter, Afifa Abdullah, 26, told the court she had been tricked into lending Ms Lim two precious blue and yellow diamond rings as collateral on a propery deal.
She wept as she told judge Mr Justice Lindblom the stones were never returned.
Miss Abdullah said: "She told me she was doing a property deal and asked if she could borrow my mum's jewellery, something precious from my mum's collection.
"At the time, I obviously trusted her - she was like my best friend."
Miss Abdullah said Ms Lim had asked to borrow the rings twice in November and December 2009, "for a few hours (and would) get them back to me straight away."
When the replicas were discovered, Miss Abdullah said, the bodyguard begged: "Please don't tell Mama, or I go to jail.
"I didn't tell my mum because she didn't know anything about it," she added.
She said her mother did not ever give her consent or authority to hand the diamonds to Ms Lim, and added that she had later heard her confess to the thefts in Brunei.
She said her mother had "panicked" when she discovered the pear-shaped blue diamond and yellow rectangular diamond were missing, while one of the replicas was being altered at a jewellers.
Ms Lim, who is not attending the hearing and says she is unrepresented due to lack of funding, is also accused of taking a £3.5m diamond bracelet from her employer in 2008 and selling it.
Mr Malin told the judge Mrs Aziz is seeking damages for the full value of the bracelet, and is pursuing another court case for the return of the diamonds from a dealer believed to have bought them in Geneva.
Should that action fail, Mrs Aziz will also seek the value of those gems in damages from Ms Lim.
If the gems are returned, compensation will be sought for the cost of recovering them, the barrister explained.
The High Court hearing continues.