The allegedly murdered man had been under questioning inside a building towards the end of the mission in Khaz Uruzgan in Afghanistan in 2012, the Federal Court was told on Friday.
The serving soldier, codenamed Person 14, testified that Mr Roberts-Smith walked up to an interpreter and pointed at members of the Afghan soldiers also inside the building.
"He said ... 'tell him to shoot him or I will'," Person 14 told the court.
"(The interpreter) sort of stumbled, he didn't relay that ... insinuating 'what?'
"Then Ben reiterated ... 'tell him to shoot him or I will'."
After discussion between the interpreter and Afghan soldiers, one stepped forward and unloaded seven to 10 rounds into the detained man.
"I was perplexed but I didn't say anything," Person 14 said, adding he heard no other SAS soldier speak.
Mr Roberts-Smith, who is among Australia's most highly decorated living soldiers, is suing three newspapers over their reports identifying him as being involved in war crimes between 2006 and 2012.
The war hero has denied committing any war crimes or murders in Afghanistan, rubbishing some of the media outlets' claims as "ridiculous".
Person 14, who was a corporal during the 2012 mission, said the Australian soldiers were about 15 minutes from extraction when he walked up to the building and saw the detainee, Mr Roberts-Smith and other soldiers.
"He was slender, middle-aged, had a beard, had white traditional robes, Afghan robes, and he was holding his grey waist-jacket in his right hand," Person 14 said.
Person 14 then noticed what appeared to be a fake wall in a courtyard, kicked it and uncovered a large arsenal, including rice bags of bullets, rocket-propelled grenades, warheads and rifles.
After a minute or two, he peered back into the building and noticed "the mood had changed".
Mr Roberts-Smith then issued the shoot "or I will" order, Person 14 said.
The witness says, later but before the extraction, he heard the troop sergeant ask "what happened to the f***ing PUC (person under control)?"
Person 14 also alleged seeing the infamous shooting death of an Afghan man with a prosthetic leg by an Australian SAS soldier in 2009.
The death, which preceded the man's leg being taken back to base and used as a drinking vessel, occurred outside at a Taliban compound dubbed Whiskey 108, in Uruzgan province.
Person 14 said he was maintaining watch of the mission area when he saw three Australian soldiers and a black figure outside Whiskey 108.
"(The figure) was thrown to the ground and a thud happened like when a person hits the ground - that kind of noise of expulsion of air when a person is winded," Person 14 said.
A soldier raised their Minimi and fired "an extended burst".
"It was loud, like brrrrrrrrr and I was like 'OK' and (they) turned and walked back into Whiskey 108.
"I turned to my 2IC and said 'What the hell was that?'"
Person 14 recalled his whole patrol - numbering six - saw the incident but he couldn't recall any verbal acknowledgement of that.
Due to distance, low light and drizzling rain, he said he couldn't make out the shooter's identity but noticed two of the soldiers had the distinctive camouflage paint worn by Mr Roberts-Smith's patrol.
He said he later saw Mr Roberts-Smith carrying a Minimi, an automatic weapon carried by most SAS soldiers.
Mr Roberts-Smith denies ordering the execution and disputes the way the disabled Afghan was killed.
The war hero says he shot dead an insurgent he'd spotted with a bolt-action rifle.
Under cross-examination that will continue on Monday, Person 14 admitted he'd had doubts about Mr Roberts-Smith's actions which led to his VC medal.
But he denied telling any other person, including a "friend" and colleague codenamed Person Six.
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