Former Victorian drug squad detective Paul Dale is suing the state over his treatment in the Barwon Prison.

Mr Dale spent seven months in the Barwon Prison while awaiting trial over the murder of police informer Terence Hodson and his wife.

The charges were later dropped.

Mr Dale's solicitor John Suta says his client suffers mental health issues as a result of his time in jail and is suing the state for an unspecified amount.

Last week Dale was found not guilty of lying to the Australian Crime Commission over his links to gangland killer Carl Williams.