For a tense half a minute the Queen's 53-year-old son was in danger of being shot dead by officers paid to protect him and his family, the Daily Express reported.
Last night a internal inquiry was being carried out into the extraordinary incident, which took place last Wednesday, two days after a trespassing and burglary incident took place at Buckingham Palace.
Royal protection officers were said be "jittery" after a genuine intruder had been found in the Palace's state rooms two days earlier.
"They shouted all the usual, put your hands up and get on the ground, and both pointed their guns straight at him. He might have served in the Falklands war but I don't care who you are, it must have been terrifying," the insider said.
Two days before this incident, police said a man was arrested inside the palace on suspicion of burglary, trespass and criminal damage. A second man was arrested outside on suspicion of conspiracy to commit burglary. Both were bailed.
"Everyone is talking about these two incidents and can't quite believe what has happened," the royal insider said.
"The fact that this guy was able to wander off unchallenged and not be spotted by anyone is bad enough. But then to mistake the Duke (of York) for another intruder is almost incomprehensible," the source said.
Andrew had been in London to visit PopUp Piccadilly, a scheme to support new retail businesses. He had only just returned from a two-week holiday in Spain, with his former wife Sarah, the Duchess of York, and their daughters Bea and Eugenie.
