The Bundesnachrichtendienst (BND) said on Thursday that the employee was told in Macedonia in January 2004 that authorities there had arrested Khaled el-Masri, and handed him over to American authorities.
The German government has previously said it learnt only in May 2004 about the case.
Masri says he was held by the United States for months in an Afghan jail before being released without charge and dumped in Albania. He is seeking compensation for alleged abduction and torture.
His case provoked criticism of the secret transfer of terrorist suspects between countries used by the US known as "extraordinary rendition".
The office of Angela Merkel, the German chancellor, said in a statement it "regretted" that the information had not previously come to light and would pass it on to prosecutors in Munich who are investigating Masri's alleged abduction.
The BND said its employee had heard about Masri during a conversation in the canteen of a Macedonian security agency in early January 2004.
"We are clearly in a rather embarrassing situation now... It is highly regrettable but it can't be changed"
A BND statement said: "A person he did not know casually told him that a German citizen called el-Masri had been arrested at Skopje airport because he was on a wanted list. El-Masri had been handed over to the Americans."
A spokesman said the man was a low-ranking official who had not realised the significance of the information.
"We are clearly in a rather embarrassing situation now ... It is highly regrettable but it can't be changed," he said.
The scandal comes at a time for the spy agency after disclosures in an investigator's report last week that, until recently, the BND spied on German journalists to try to discover their sources.
A newly convened parliamentary investigation is preparing to question Masri and German officials as part of a wider inquiry into the role of the security services and their co-operation with the US in the war on terrorism.
Human rights groups say secret "rendition" transfers can lead to abuse and torture because suspects are often held without lawyers or contact with the outside world in countries that are known to practise torture.
Washington admits that such transfers happen but denies torturing suspects or handing them over to countries that do.