Allegations that British soldiers murdered insurgents and mutilated their bodies after a fierce firefight in Iraq were roundly rejected by an official inquiry, which also found that a number of prisoners were abused and that troops breached the Geneva convention.

The al-Sweady inquiry – named after an Iraqi teenager killed in the battle – found that the murder allegations were “wholly without foundation and entirely the product of deliberate lies, reckless speculation and ingrained hostility”.

It concluded that soldiers were guilty of mistreating detainees, including depriving them of food and sleep and blindfolding them, in breach of international law and Ministry of Defence rules.

At the end of a year-long inquiry, Sir Thayne Forbes, a former high court judge, found in his 1,350-page report that the most serious allegations made against the soldiers were “wholly and entirely without merit or justification”.

In a Commons statement, Michael Fallon, the defence secretary, described these allegations as “shameful and despicable”, and criticised Phil Shiner, the Iraqis’ lawyer, for making claims that turned out to be baseless, and for not withdrawing the claim that British soldiers had murdered insurgents inside their base camp until near the end of the inquiry.

Had Shiner withdrawn the allegations earlier, Fallon said, he would not have received legal aid for the judicial review which led to the Forbes inquiry, Iraqi families would have been spared six years of false hope, British soldiers six years of anxiety, and taxpayers six years expense.

Fallon told MPs that Public Interest Lawyers and law firm Leigh Day, which also represented some of the Iraqi detainees, were tthe subject of an investigation by the solicitors’ professional body over a possible breach of professional standards. The Solicitors’ Regulation Authority later confirmed that it was investigating both firms.

Investigations into hundreds of further allegations of abuse by British troops in Iraq have yet to be completed, and in May the international criminal court at The Hague announced that it would mount a preliminary examination of those claims, and the way in which they have previously been examined by an inquiry that is managed by the Ministry of Defence.

Clive Baldwin, senior legal adviser at Human Rights Watch, said: “If the MoD wants to avoid future inquiries it needs to ensure it has ended abuse in detention.Accepting independent inspection of its detention centres overseas will be a key to bringing this scourge of abuse in military custody to an end.”

The inquiry, which has cost more than £24m, was set up in 2009 after the high court criticised the MoD for not conducting an effective investigation into the battle of Danny Boy, named after a British checkpoint near Majar al-Kabir, north of Basra, on 14 May 2004. In what Forbes describes as a “deadly, planned and coordinated armed ambush of British troops”, 28 Iraqis were killed. Twenty of the bodies as well as those of nine captured insurgents were brought to a British base called Camp Abu Naji, to see if the captured or dead Iraqis any included the ringleader of the massacre of six British military police nearby a year earlier.

The soldiers who handled the bodies found the task “extremely distressing and upsetting and one that had a profound and lasting effect on them”, according to the report. It also left the soldiers “very exposed to allegations that Iraqi men had been murdered, tortured and mutilated” at the British camp. In addition, it provided momentum for “the rumours and allegations”, Forbes says.

He also concluded: “The conduct of various individual soldiers and some of the procedures being followed by the British military in 2004 fell below the high standards normally to be expected of the British army. Aspects of the way in which the nine Iraqi detainees ... were treated by the British military, during the time they were in British custody during 2004, amounted to actual or possible mistreatment.”

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His report contains numerous examples of ill-treatment by British soldiers during “tactical questioning”, including the practice of blindfolding, which was ostensibly banned in 1972 after criticism of its use in Northern Ireland, and again prohibited by an order of senior British officers after the death of Baha Mousa, a Basra hotel worker, in British custody in 2003. “The almost continuous deprivation of the detainees’ sight at Camp Abu Naji ... amounted to a form of mistreatment,” he concluded.

Forbes concludes: “It seems to me likely that a deliberate decision was taken, by those in charge of prisoner handling, not to give the detainees any food until their tactical questioning had been completed.” He added that “it was wholly inappropriate to prevent the detainees from sleeping” and that such a practice “was wrong in principle and amounted to a form of mistreatment”.

In a further passage, he says “a number of the detainees described how they had, in fact, felt greatly humiliated and demeaned by having to remove all their clothes and/or by having had them forcibly removed during processing … I have heard credible evidence from a number of sources that such an order would have been particularly humiliating for an Iraqi Muslim man.”

The inquiry was critical of the medical neglect of some of the prisoners who had been wounded during the battle.

A corporal who examined one Iraqi, who had a number of shrapnel wounds in his legs and a penetrating gunshot wound in his right foot, did not consider that he needed to be seen by a doctor.

When this prisoner was moved to another detention centre the next day, he was examined by a regimental medical officer, Maj David Winfield, who was expected to decide whether detainees were “fit for detention and questioning”. Winfield accepted there was no record that he had prescribed any pain relief, despite the man being obviously in pain.

Forbes said Winfield had been “somewhat dismissive in his attitude to the welfare of the detainees … he showed very little sympathy for the detainees as patients”, and he had been “going through the motions … rather than giving them the attention of a caring doctor”.

Forbes recommends that future military interrogations be videotaped; that all documents should be removed from any theatre of operations and stored securely for at least 30 years; that training material should be more carefully stored and date marked; and that a new policy, compliant with the European convention on human rights, be drafted for the investigation of incidents in which shots are fired.

General Sir Nicholas Carter, head of the army, said: “This report will be a huge relief to the soldiers and their families who have been affected. It shows that the soldiers involved in this engagement acted with exemplary courage, resolution and professionalism.”

He added: “It is of course right that the Army and its soldiers should be held to account when they fail to uphold our high standards. And it is important that we learn appropriate lessons from this case.”