Paul McIntyre, 52, from Kinnego Park in Derry, has been charged with the murder of Ms McKee, possession of a firearm and membership of a proscribed organisation, the IRA.
Ms McKee, who was 29, was observing rioting in Derry’s Creggan estate when she was shot on last April 18.
Mr McIntyre denies all charges.
On Monday, the High Court in Belfast heard Mr McIntyre is alleged to have told a former partner he was not responsible for the murder, but that it was the son of another member of a dissident republican group.
The details were revealed by the prosecution who are appealing against last week’s decision by Londonderry Magistrates’ Court to grant bail to Mr McIntyre.
Although Mr McIntyre was granted bail, he remains in custody, pending an appeal against the decision.
A prosecution lawyer said after Ms McKee was shot, Mr McIntyre told an ex-partner: “It wasn’t me. It was one of the members’ sons.”
The prosecution told the High Court, sitting at the Laganside courts complex, Mr McIntyre was identified as having been present at the incident by what he was wearing – namely a baseball cap, tracksuit trousers, markings on his trainers and by a bracelet.
The prosecution said at the time of the killing two PSNI officers identified Mr McIntyre by his build, height and gait, and 16 officers identified him earlier in the evening wearing the same clothes.
The prosecution alleged he was the man seen walking beside the gunman, and he was the man seen crouching down and picking up four cartridge cases from the gun.
They also said Mr McIntyre was then spotted leaving the scene with the gunman.
The prosecution is opposing bail on the grounds of the risk of further offences and also of the fear of the intimidation of witnesses.
The defence lawyer said last week’s granting of bail should stand and Mr McIntyre must be released.
He argued no prima facie case had been established on the charge of murder.
The appeal hearing continues.