Kosovo's prime minister is the head of a "mafia-like" Albanian group responsible for smuggling weapons, drugs and human organs through eastern Europe, according to a Council of Europe inquiry report on organised crime.

Hashim Thaçi is identified as the boss of a network that began operating criminal rackets in the runup to the 1998-99 Kosovo war, and has held powerful sway over the country's government since.

The report of the two-year inquiry, which cites FBI and other intelligence sources, has been obtained by the Guardian. It names Thaçi as having over the last decade exerted "violent control" over the heroin trade. Figures from Thaçi's inner circle are also accused of taking captives across the border into Albania after the war, where a number of Serbs are said to have been murdered for their kidneys, which were sold on the black market.

Legal proceedings began in a Pristina district court today into a case of alleged organ trafficking discovered by police in 2008. That case – in which organs are said to have been taken from impoverished victims at a clinic known as Medicus – is said by the report to be linked to Kosovo Liberation Army (KLA) organ harvesting in 2000. It comes at a crucial period for Kosovo, which on Sunday held its first elections since declaring independence from Serbia in 2008. Thaçi claimed victory in the election and has been seeking to form a coalition with opposition parties.

Dick Marty, the human rights investigator behind the inquiry, will present his report to European diplomats from all 47 member states at a meeting in Paris on Thursday. His report suggests Thaçi's links with organised crime date back more than a decade, when those loyal to his Drenica group came to dominate the KLA, and seized control of "most of the illicit criminal enterprises" in which Kosovans were involved south of the border, in Albania.

During the Kosovo conflict Slobodan Miloševic's troops responded to attacks by the KLA by orchestrating a horrific campaign against ethnic Albanians in the territory. As many as 10,000 are estimated to have died at the hands of Serbian troops.

While deploring Serb atrocities, Marty said the international community chose to ignore suspected war crimes by the KLA, "placing a premium instead on achieving some degree of short-term stability". He concludes that during the Kosovo war and for almost a year after, Thaçi and four other members of the Drenica group named in the report carried out "assassinations, detentions, beatings and interrogations". This same hardline KLA faction has held considerable power in Kosovo's government over the last decade, with the support of western powers keen to ensure stability in the fledgling state.

The report paints a picture in which ex-KLA commanders have played a crucial role in the region's criminal activity. It says: "In confidential reports spanning more than a decade, agencies dedicated to combating drug smuggling in at least five countries have named Hashim Thaçi and other members of his Drenica group as having exerted violent control over the trade in heroin and other narcotics."

Marty says: "Thaçi and these other Drenica group members are consistently named as 'key players' in intelligence reports on Kosovo's mafia-like structures of organised crime. I have examined these diverse, voluminous reports with consternation and a sense of moral outrage."

His inquiry was commissioned after the former chief prosecutor for war crimes at the Hague, Carla Del Ponte, said she had been prevented from investigating senior KLA officials. Her most shocking claim, which she said required further investigation, was that the KLA smuggled captive Serbs across the border into Albania, where their organs were harvested.

The report, which states that it is not a criminal investigation and unable to pronounce judgments of guilt or innocence, gives some credence to Del Ponte's claims.

It finds the KLA did hold mostly Serb captives in a secret network of six detention facilities in northern Albania, and that Thaçi's Drenica group "bear the greatest responsibility" for prisons and the fate of those held in them.

They include a "handful" of prisoners said to have been transferred to a makeshift prison just north of Tirana, where they were killed for their kidneys.

The report states: "As and when the transplant surgeons were confirmed to be in position and ready to operate, the captives were brought out of the 'safe house' individually, summarily executed by a KLA gunman, and their corpses transported swiftly to the operating clinic.''

The same Kosovan and foreign individuals involved in the macabre killings are linked to the Medicus case, the report finds.

Marty is critical of the western powers which have provided a supervisory role in Kosovo's emergence as a state, for failing to hold senior figures, including Thaçi, to account. His report criticises "faltering political will on the part of the international community to effectively prosecute the former leaders of the KLA".

It concludes: "The signs of collusion between the criminal class and the highest political and institutional office holders are too numerous and too serious to be ignored.

"It is a fundamental right of Kosovo's citizens to know the truth, the whole truth, and also an indispensable condition for reconciliation between the communities and the country's prosperous future."

If as expected the report is formally adopted by the committee this week, the findings will go before the parliamentary assembly next year.

The Kosovo government tonight dismissed the allegations, claiming they were the produce of "despicable and bizarre actions by people with no moral credibility".

"Today, the Guardian published an article that referred to a report from a member of the Parliamentary Assembly of the Council of Europe, Dick Marty, which follows up on past reports published over the last 12 years aiming at maligning the war record of the Kosovo Liberation Army and its leaders," it said in a statement.

"The allegations have been investigated several times by local and international judiciary, and in each case, it was concluded that such statements have were not based on facts and were construed to damage the image of Kosovo and the war of the Kosovo Liberation Army.

"It is clear that someone wants to place obstacles in the way of prime minister, Hashim Thaçi, after the general election, in which the people of Kosovo placed their clear and significant trust in him to deliver the development programme and governance of our country.

"Such despicable and bizarre actions by people with no moral credibility, serve the ends of only those specific circles that do not wish well to Kosovo and its people."

• This article was amended on 15 December 2010. The original dated the Kosovo conflict to 1999 alone. This has been clarified.