The police watchdog made a series of errors in an investigation that cleared officers over the death of a man in custody, an independent report has found.

Sean Rigg, 40, died after being restrained and arrested in 2008 in south London. An investigation by the Independent Police Complaints Commission (IPCC) ruled that officers had acted reasonably and proportionately.

An independent review tore those conclusions apart on Thursday and found that the commission had blundered. The IPCC said it could no longer stand by its original findings and accepted the review in full.

The review was ordered after an inquest jury last year found that police used unsuitable and unnecessary force against Rigg, with officers failing to uphold the detained man's basic rights, and with police actions contributing to his death.

Three officers are currently under criminal investigation over evidence given to the inquest, and it was left to the Rigg family, assisted by the deaths-in-custody charity Inquest, to uncover CCTV footage contradicting one officer's account. All this was missed by the first inquiry, which was found to have committed blunder after blunder, assisted by errors by the police and "inappropriate conduct" by the Police Federation.

The review, led by the criminologist Dr Silvia Casale, criticised the IPCC for accepting accounts from officers that were "improbable" and "implausible".

Officers were allowed to confer with each other before making initial statements to investigators.

Rigg, 40, who had paranoid schizophrenia, was living in a south London hostel in August 2008. One day he smashed up a gazebo and made karate moves which staff saw as threatening.

Three hours after the first 999 call, police responded, and officers restrained Rigg and took him to Brixton police station, where he died.

During interviews by the IPCC, officers were accompanied by representatives from the Police Federation.

The review said: "When one of the four police officers involved in the arrest was asked whether Mr Rigg's demeanour seemed normal, the [federation] representative interrupted repeatedly, including asking: 'What's normal?' The review considers this inappropriate."

Examples of interference by the federation highlighted by the review included answering questions on behalf of officers and asking inappropriate questions that gave covert assistance to the officers being interviewed.

The review found IPCC "interviewers at times appearing hesitant to put to the police officers fundamental questions about how they exercised their duty of care". It also found the IPCC had a "malaise" about racial issues and that its investigation was too soft in challenging police accounts.

The review described as "implausible and improbable" accounts from officers that Rigg had not said a word while in their custody and while being taken to the police station.

The review added: "The four officers described Mr Rigg as spinning around, rotating or 'walking his legs' around the cage walls, as he lay on his back in the footwell, with his hands cuffed behind his back. The review considers that such spinning or rotating would be impossible in practice, given the internal dimensions of the cage."

The review even hired an expert in break dancing to see if Rigg could have rotated in the way police claimed.

The review found that an IPCC senior investigator had checked the police national computer records of two members of the Rigg family, after they were passed over by the Met. The review said this was wrong and "may have been in breach of data processing principles".

It also criticised the decision to allow officers to confer before giving their initial accounts.In future cases of death in custody cases, the review recommends It said: "The arresting police officers should have been separated and instructed not to speak or otherwise communicate with each other about the events until the IPCC was able to take detailed initial statements from each."

Casale said: "We found that the IPCC investigation and report concerning the tragic death in custody of Sean Rigg in 2008 should have been more robust, in particular as regards its pursuit of lines of inquiry and critical analysis of the evidence."

Marcia Rigg, sister of Sean, said: "This report shows just how badly we were failed by the IPCC, not to mention the police. It is frightening to think that in the intervening years, as we struggled for justice, more families will have been failed in the same way.

"We hope that a complete re-investigation of the issues identified by the review, with new consideration of police misconduct and criminal proceedings, will take place as quickly as possible.

"And the police and the Police Federation need to sit up and take notice of this report and get their own houses in order rather than obstructing the IPCC in its statutory role."

The IPCC said it accepted the review's findings, could no longer stand by the findings of its first investigation and would consider reopening its investigation to examine misconduct charges.

The IPCC chair, Dame Anne Owers, said: "I will be working with commissioners and staff to ensure that those lessons are put into practice. I am encouraged by the fact that many of the concerns expressed by Dr Casale, her team and the Rigg family have also been voiced in discussions among our own staff and commissioners, as well as by other external stakeholders."

Two officers are under investigation over their evidence to the inquest and to investigators and have been arrested on suspicion of perjury and perverting the course of justice. One of those is Sergeant Paul White, who claimed at the inquest to have checked on Rigg while he was detained in a police van, which clashed with CCTV evidence showing no such visit. The officer later admitted what he said was not true. The other officer under investigation is Constable Mark Harratt.

A retired PC has been arrested on suspicion of perverting the course of justice. All three are on bail.