The Home Secretary said that both the police and the Crown Prosecution Service believed their agreement with Saajid Badat was in the interests of justice as it helped them pursue other extremists.
And in questioning by the Home Affairs Select Committee she pointed out that defendants or prisoners becoming informers is a "long-standing feature" of the British criminal justice system.
Her comments came after The Daily Telegraph disclosed for the first time details of the deal between the British authorities and the former Gloucester grammar school boy who agreed to become a shoe bomber.
Badat had trained with fellow jihadis in Afghanistan and agreed to blow up a passenger jet just three months after 9/11.
But while his co-conspirator Richard Reid went ahead with the plot and was overpowered as he tried to light explosives on the transatlantic flight, Badat changed his mind and dismantled the device before leaving it under the bed at his parents' home.
He was jailed in 2005 but under a secret agreement only made public this month, he had two years taken off his sentence after deciding to turn supergrass.
In a New York court, where he is giving evidence against a US citizen accused of a subway suicide bomb plot, it was disclosed that Badat has been re-housed with British taxpayers' money and given funds to pay for office space and education courses. The 33 year-old even had his mobile phone and internet bills paid for by Scotland Yard.
Keith Vaz, the Labour MP who chairs the home affairs committee, said to the Home Secretary on Tuesday: "Finally, the case of Saajid Badat, a supergrass who has apparently been rehoused using taxpayers' money and given taxpayers' money for the creation of office space in his house and he has access to mobile phones and the internet, and we're paying for the cost of this.
"The surprise is that this was only told to us because of a case in New York, we were not aware of it. Presumably this is not the first time that you were made aware of it. Is the newspaper report accurate - are we paying for this?"
Mrs May replied: "What is accurate is that the CPS have said that they considered very carefully the merits of entering into this agreement with a convicted terrorist, that they believed the administration of justice would actually benefit from the agreement they entered into.
"And I understand that the police have also said he has secured substantial and significant evidence and intelligence relating to investigations undertaken by the counter-terrorism command which has assisted law enforcement agencies in other countries.
"The co-operation of defendants or prisoners with police to help catch terrorists or bring other terrorists to justice obviously is an issue that has to be considered and looked at on the merits of each individual case. But co-operation is obviously a long-standing feature of our criminal justice system."
