Evidence has emerged that the Monsanto chemical company paid contractors to dump thousands of tonnes of highly toxic waste in British landfill sites, knowing that their chemicals were liable to contaminate wildlife and people. Yesterday the Environment Agency said it had launched an inquiry after the chemicals were found to be polluting underground water supplies and the atmosphere 30 years after they were dumped.

According to the agency it could cost up to £100m to clean up a site in south Wales that has been called "one of the most contaminated" in the country.

A previously unseen government report read by the Guardian shows that 67 chemicals, including Agent Orange derivatives, dioxins and PCBs which could have been made only by Monsanto, are leaking from one unlined porous quarry that was not authorised to take chemical wastes.

The Brofiscin quarry on the edge of the village of Groesfaen, near Cardiff, erupted in 2003, spilling fumes over the surrounding area, but the community has been told little about the real condition of what is in the pit. Yesterday the government was criticised for failing to publish information about the scale and exact nature of this contamination.

Douglas Gowan, a pollution consultant who produced the first official report into the Brofiscin quarry in 1972 after nine cows on a local farm died of poisoning, said: "The authorities have known about the situation for years, but have done nothing. There is evidence of not only negligence and utter incompetence, but cover-up, and the problem has grown unchecked."

Much of the new information about Monsanto's activities in Britain in the 1960s and early 1970s has emerged from court papers filed in the US and previously unseen internal company documents. They show how the company knew from 1965 onwards that the PCBs - polychlorinated biphenyls used mainly as flame retardants and insulaters - manufactured in the US and at its plant in Newport, south Wales, under the trade name Aroclor, were accumulating in human milk, rivers, fish and seafood, wildlife and plants.

The documents show that in 1953, company chemists tested the PCB chemicals on rats and found that they killed more than 50% with medium-level doses. However, it continued to manufacture PCBs and dispose of the wastes in south Wales until 1977, more than a decade after evidence of widespread contamination of humans and the environment was beyond doubt.

A high-level committee within the company was given the task in 1968 of assessing Monsanto's options and reported contamination in human milk, fish, birds and wildlife from around the world, including Britain. "In the case of PCBs the company is faced with a barrage of adverse publicity ... it will be impossible to deny the presence and persistence of Aroclors. The public and legal pressures to eliminate or prevent global contamination are inevitable and probably cannot be contained successfully," the committee reported.

The report, which was shown to only 12 people, said: "The alternatives are [to] say and do nothing; create a smokescreen; immediately discontinue the manufacture of Aroclors; respond responsibly, admitting growing evidence of environmental contamination ..." A scrawled note at the end of the document says: "The Big Question! What do we tell our customers ... try to stay in business or help customer's clean up their use?"

Monsanto stopped producing PCBs in the US in 1971, but the UK government, which knew of the dangers of PCBs in the environment in the 1960s, allowed their production in Wales until 1977.

Yesterday Monsanto, which has split into several corporate entities since 1997, said in a statement: "On behalf of [former parent company] Pharmacia Corp, Monsanto is handling issues related to the historical manufacture of PCBs in Wales. We continue to work with the Wales Department of Environment and other regulatory bodies to resolve these issues. A thorough review ... will show that Pharmacia did inform its contractors of the nature of wastes prior to disposal, and that Pharmacia did not dump wastes from its own vehicles."

Solutia, the spin-off from Monsanto which now owns the Newport site, said it was giving Monsanto and the regulatory agencies "information as requested".

The Environment Agency Wales said it was investigating the contents of the site: "This is one of the most contaminated sites in Wales and it is a priority to remediate because it is so close to habitations," said John Harrison, the agency's manager of the Taff/Ely region. "There is ground water pollution, but we do not think at present there is any danger to human health. We have spent about £800,000 so far investigating the tip. Our legal team is gathering all the evidence and we are trying to apportion costs."