Lance Corporal Michael Pritchard, 22, from Eastbourne in East Sussex, was killed by a shot believed to have been fired from a remote observation post, or sangar, by Lance Corporal Malcolm Graham, of The Royal Scots Borderers, 1st Battalion, who thought he was shooting at insurgents digging in the road.
The hearing at Eastbourne Town Hall was told L/Cpl Pritchard, who was on secondment with 4th Battalion The Rifles, was deployed to the observation post N30 on December 20, 2009, to watch a blind spot on an access road, Route 611, in the Sangin area of central Helmand Province.
He was to make sure Taliban insurgents did not plant improvised explosive devices (IEDs) in the road, the hearing was told.
L/Cpl Graham said that all of his sniper training had taken place during daylight hours and he had never used a thermal imaging sight at night. He told the court he was in bed on December 20 when he was told there were insurgents digging IEDs into the road and that he would receive a briefing when he got to the remote sangar.
On arrival he asked section commander Corporal Jonathan Dolton what was happening, and was told two men were digging IEDs into the road 700m away, the inquest heard.
He was also told "escalation" drills had been carried out and sentries had fired warning shots with a machine gun.
L/Cpl Graham said: "He [Cpl Dolton] told me there was an observation post in the area and that I had been brought in for accurate fire."
L/Cpl Graham said he was never given an exact location for the post and asked Cpl Dolton for more information. He was told it was on the right- hand side of the road from where the suspected insurgents were digging but they could not see the observation post from where they were.
Cpl Dolton told the inquest that, had he realised his men were shooting at British soldiers, they would have ceased firing immediately.
He said poor radio communication meant he never received any messages to say shots were being fired close to an observation post where one of their colleagues was fatally wounded.
Cpl Dolton said he was told by soldiers when he arrived at the remote sangar that they thought they had spotted insurgents in the road.
He looked through a viper thermal imaging sight and made out two human figures in the road, the inquest heard.
Cpl Dolton said: "Following all the suspicious activity I asked the ops room for permission to follow the escalation procedure, meaning moving from warning shots to lethal."
He said at no point was he told to cease firing at the targets.
The inquest continues.