Zacharia Matiang says he and two other teenagers were assaulted in Melbourne by eight Victoria police officers Flemington Kensington Community Legal Centre

Victoria police will reopen an internal investigation into a raid that allegedly resulted in several African-born people being racially abused, punched and subdued with capsicum spray, amid claims that the force is guilty of institutional racism.

In a video obtained by Guardian Australia, Kenyan-born Zacharia Matiang describes how eight police officers, investigating the theft of two bags of chips from a nearby 7-Eleven, assaulted him and two other teenagers in 2009, and called him a "black cunt".

In what legal groups say is part of a disturbing trend, a complaint to the independent police integrity body was deemed to have merit, but then dropped when it was passed to Victoria police to take action. A civil lawsuit, launched in parallel to the complaint, was settled confidentially in May before it reached court.

The Flemington and Kensington Community Legal Centre, which represented Matiang, said there had been 10 cases since 2006 in which African Australians were charged with hindering police but magistrates later ruled that officers had used inappropriate force against them, entered property without a proper warrant or stopped suspects without due cause, resulting in the cases being thrown out and compensation paid.

Tamar Hopkins, a solicitor at the centre, said Victoria police's track record showed it suffered from "institutional racism" and a severe lack of accountability.

Hopkins said there was an endemic problem in the way officers treated the African community living in Melbourne's north-west suburbs. "The police act almost like an internal border patrol," she said. "They say 'get back to Africa' to people on the streets. I've heard of this happening many times.

"It's degrading and inhuman treatment. How can people possibly feel good about themselves while treated differently and harassed by police? We've heard of the police conducting random checks at Flemington's public housing estate for no reason.

"We are looking at institutional racism. Victoria police needs to admit there is racial profiling and do something about it."

Victoria police denied to Guardian Australia that it had a systemic problem with racism, but said it was "concerned" by the allegations and confirmed that it would revisit the Matiang case with oversight from the Independent Broad-Based Anti-Corruption Commission (Ibac), Victoria's corruption watchdog.

"Whilst we do not accept that this is a widespread problem, the perception that racial profiling has in the past been allowed to occur is something we are determined to reverse," a police spokesman said.

It is alleged that in April 2009 officers entered the rear of a Williamstown property without a warrant to access an adjacent bungalow containing Matiang and and two other youths, born in Sudan and Kenya. All three teenagers were under 18 at the time.

In a video describing the events, Matiang says of a police officer: "He got really aggressive with me, started screaming, 'Tell us who fricking stole the chips, you little shit.' "Out of the blue he took a pepper spray can and put it into my face and just started spraying, like I was some type of insect. Everything went blank in my head. There was screaming and yelling and pepper spray cans going off like fire hoses.

"I saw them drag one of the boys out of the room and they were stomping the hell out of him, kicking him on the floor and everything.

"A police officer was on my back putting handcuffs on me, dragging me to the front yard and he did assault me with his baton and punched me, too. He took me to the side of the house and punched me."

The civil claim, which was settled with no liability attached to police, alleged that one of the officers had called Matiang a "black cunt" while another had told one of the other youths, who was eventually charged over the theft: "You black cunts are all criminals. Go back to your own country."

The civil case also claimed a female officer had discharged capsicum spray into the main house, which contained Matiang's mother, Rebecca Long, and three infant children, the youngest just three months old. Matiang said he had been "traumatised" by the raid.

A complaint about the behavior of police was investigated by the Office for Police Integrity, which found that officers had used excessive force.

The OPI's annual report for 2010-11 said the case "clearly raises concerns" of "racial targeting" by police.

"Police had been told one male, 20 years old, dark black skin, had been involved in the theft of chips, yet this was enough to cause four members of the police to be deployed directly to a house known to be occupied by people of African descent," the report said.

"No attempt was made by police to confirm the identity of the alleged thief before the raid on the dwelling."

When the case was referred to Victoria police to take action, the force conducted its own review that found that many of the OPI's findings were not valid.

Earlier this year the OPI's functions were transferred to Ibac.

A spokeswoman for Ibac, which is tasked by law with the "identification, investigation and exposure of police misconduct", turned down Guardian Australia's request for the OPI's report to be released.

Community legal groups in Melbourne have opted to launch civil cases against the police owing to the belief that the complaints system is conflicted and lacks accountability. The Professional Standards Command (PSC), which sits within Victoria police, now investigates officers, with figures showing that only 5% of allegations of police assault are proved after investigation.

Hopkins said civil cases were invariably settled confidentially before reaching court, although criminal cases launched by the police against African-born people had resulted in damning judgments against the force.

In one case, Somali man Ahmed Dini lodged a complaint that a police officer had smashed his teeth with a torch. Investigators found the complaint was not valid; police subsequently charged Dini with hindering officers.

But the magistrate found Dini had not hindered the police and that he had been unlawfully touched. He later received $70,000 in compensation.

In another case a magistrate decided a police officer had no right to touch an Eritrean taxi driver after investigators accepted that the officer's hand had "slipped" around the driver's neck, the image of which was caught on the taxi's camera system.

Another magistrate found police had trespassed when searching a Sudanese boy's house and yet another said police had "unjustifiably breached the right to freedom of movement" of a man from an African background by arbitrarily stopping his car.

The man who was pulled over, Magnus Kaba, was also one of six men involved in a racial discrimination case against the police that was settled in February. A statistical analysis as part of the case found that African people were around two and a half times more likely to be subjected to arbitrary "stop and search" than other residents.

The case triggered a review by Victoria police of its interaction with different communities. Public submissions for the review ended on 31 July, with the outcome set to be released by the end of the year.

Victoria police has been dogged by several allegations of racism since the launch of the review, including the revelation that officers kept stubby holders mocking Sudanese migrants.

Chief commissioner Ken Lay has said there is "no place" in the force for racists.

Hopkins said she hoped the review would lead to greater transparency and new procedures, such as the handing out of receipts to people randomly stopped by police.

"We need a functioning complaints system that's independent of the police," she said. "The Matiang case was settled confidentially and no one has ever apologised to the family.

"In England, you can look up the stats on stop and search to see what's happening. We need that here. A lot of people with appalling racist views are getting into the police. They need to be screened from the outset and officers found to have acted with racist conduct should be sacked. Excessive force and racism shouldn't be tolerated by the police."

Fitzroy Legal Service, another community law group, said its complaint about the treatment of Somali man Mohamed Hassan had been referred from the police's internal complaints division to Ibac.

A magistrate ruled last November that Hassan had been unlawfully punched by senior constable Timothy McAdie after be was pulled over for speeding. Hassan, who suffered a broken jaw, initially faced seven charges, including disturbing the "good order" of the Stawell jail by spitting blood on to the floor.

"Mohamed has moved out of Victoria – this has had a big impact on his life," said Meghan Fitzgerald, a solicitor at the legal service. "We've had dozens of complaints over police treatment but the only recourse is civil cases. People are afraid of retribution; Mohamed had that fear, too.

"People who are marginalised, homeless or poor don't complain at all, they see no point. I've seen broken ribs and broken noses. A standard method of arrest, using the three-point hold [in which police handcuff suspects, place them face down on the ground and push a knee into the upper back or neck to hold them down] is fairly terrifying. It's intimidating to be pulled over by the police four times in one day.

"Part of the problem is a lack of liability. There's a doctrine of liability around the individual rather than the organisation, which encourages officers to cover for each other. It also puts the burden on those who are complaining about police treatment.

"There needs to be a fully independent complaints system that is accountable and doesn't start with the presumption of disbelief of allegations."

A police spokesman said: "Victoria police will not tolerate racism within the force. All complaints of racism or discrimination made against police members are thoroughly investigated by PSC and Ibac advised of the complaints upon their receipt.

"We remain concerned by these and other recent allegations which have accused police members of acting racially. "We have already committed to reviewing the cross-cultural training we provide to police members, and our processes for how we manage contacts in the field. "We are encouraging Victorians from all communities to have their say on these issues, and help shape Victoria police's response to the challenges of policing an increasingly diverse and multicultural Victoria."

A spokesman for Kim Wells, Victoria's police minister, told Guardian Australia: "The chief commissioner of police has publicly condemned racism within Victoria police and the community, and racism in any form will simply not be tolerated and appropriate action taken, a view strongly shared by the Victorian Coalition government."

• This article was amended on 10 August to show that the magistrate ruling that Hassan had been unlawfully punched was made last November.