Another SAS soldier says he witnessed two Afghan prisoners willingly emerge from a tunnel before one with a prosthetic leg was led away by Ben Roberts-Smith and later executed.
It is a key event the war veteran denies occurred during an April 2009 mission dubbed Whiskey 108 in Uruzgan province.
The witness codenamed Person 40 told the Federal Court on Wednesday at the Taliban compound he saw Mr Roberts-Smith gathered with other troop members near a tunnel.
Two women appeared concerned while an interpreter was calling out for the two insurgents inside to surrender, he said.
"Once they came out (they were) obviously very frightened," he said.
"One had a distinctive limp, the person with the prosthetic leg.
"Immediately upon coming out of the tunnel he was lifting his trouser pointing to the prosthetic leg, expecting some sort of sympathy from the troops."
He said the men were searched and marched off by Mr Roberts-Smith and another soldier to where he believed they would be tactically questioned before being taken back to Australia's base.
Before his team was extracted Person 40 heard a burst of machine-gun fire.
"I do recall confusion, guys were saying on the radio 'what was that, where did that come from?'"
After Person 40 was ordered to leave he walked past the body of the prisoner with the prosthetic leg, he said.
"He was killed."
Mr Roberts-Smith, 43, is suing The Age, The Sydney Morning Herald and The Canberra Times for defamation over reports that he committed war crimes and murders in Afghanistan between 2006 and 2012.
The media outlets accuse the decorated veteran of carrying the man with the artificial leg out of the compound and shooting him with a extended burst of machine gunfire.
The former SAS corporal previously told the court there were no men in the tunnel and labelled the allegations an "outrageous claim".
Multiple witnesses giving evidence on behalf of the newspapers who seek to rely on a defence of truth, have testified of hearing the burst of ammunition.
Person 40 was legally summoned last year in April or May to give this evidence in court. About a month later he was parachute training alongside another soldier dubbed Person 29.
Person 29 approached him "out of the blue" and he recalled words to the effect that Mr Roberts-Smith knew he would be a witness in the case.
"You don't have to be a witness, if you speak to (Mr Roberts-Smith's) lawyers they'll get you to sign some sort of piece of paper and you won't have to act as a witness," Person 29 allegedly said.
"I was very surprised I sort of said 'yep OK' ... His other comment at the end was 'if you don't he'll see you in court'."
Arthur Moses SC on behalf of Mr Roberts-Smith suggested there was no interpreter outside the tunnel at Whiskey 108, and criticised his memory, but Person 40 disagreed.
He also denied that he had been fired from Person 29's troop for poor performance.
Person 40 said he and his then-patrol commander had never seen eye-to-eye "from the word go" but that he was happily repositioned away from him as the situation was "toxic".
"You've got a grudge against him?" Mr Moses said.
"No I don't."
The trial continues.
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