The extent to which successive British governments set out to hoodwink parliament and the public over the decision to give the US a military base in Diego Garcia and force out the islanders is laid bare in files released on Wednesday.

The base, on the largest island in the British Indian Ocean territory, was established after the UK bought the Chagos archipelago from Mauritius in 1965. It has been used by long-range US bombers in attacks on Iraq and Afghanistan, and would almost certainly be used in the event of any American air strikes on Iran's nuclear facilities, British officials say.

Diego Garcia was used by the CIA as a refuelling stop for flights secretly rendering terror suspects to jails, including a Libyan dissident flown to Muammar Gaddafi's Libya in an operation involving MI6.

The aim behind the decision to control the islands, noted a Foreign Office official in a document dated September 1966 and marked "Secret and Guard", was to build "defence facilities … without hindrance or political agitation".

In 1970, the Foreign Office told its officials at the UN to describe the islanders as "contract labourers" engaged to work on coconut plantations. "The merit of this line," it noted, "is that it does not give away the existence of the Ilois [the indigenous islanders] but is at the same time strictly factual."

Officials reported the prime minister, Ted Heath, as saying: "Any discussions between the United States and ourselves must remain confidential."

A year later, most of the islanders – about 1,500 in total, of whom 500 lived on Diego Garcia – were deported, mainly to Mauritius and Seychelles.

The US base deal originally agreed by the Labour government in 1966 lasts for 50 years, and includes a 20-year optional extension that both parties must agree to by December 2014.

Documents already disclosed show how a senior Foreign Office diplomat noted in 1966: "The object of the exercise is to get some rocks which will remain ours […] there will be no indigenous population except seagulls."

A fellow mandarin, Sir Dennis Greenhill, replied: "Unfortunately, along with the birds go some few Tarzans and Man Fridays whose origins are obscure and who are hopefully being wished on to Mauritius."

In April 2010, the UK established a marine nature reserve around the Chagos Islands. A cable subsequently released by WikiLeaks reported exchanges between a US political counsellor in London, Richard Mills, and a Foreign Office official, Colin Roberts. According to the leaked cable, Roberts "asserted that establishing a marine park would, in effect, put paid to resettlement claims of the archipelago's former residents".