Shell has fuelled armed conflict in Nigeria by paying hundreds of thousands of dollars to feuding militant groups, according to an investigation by the oil industry watchdog Platform, and a coalition of non-government organisations.

The oil giant is implicated in a decade of human rights abuses in the Niger delta, the study says, claiming that its routine payments exacerbated local violence, in one case leading to the deaths of 60 people and the destruction of an entire town.

Platform's investigation, which includes testimony from Shell's own managers, also alleges that government forces hired by Shell perpetrated atrocities against local civilians, including unlawful killings and systematic torture.

Shell disputes the report, defending its human rights record and questioning the accuracy of the evidence, but has pledged to study the recommendations.

In Counting the Cost: Corporations and Human Rights in the Niger Delta, Platform says that it has seen testimony and contracts that implicate Shell in the regular awarding of lucrative contracts to militants. In one case last year, Shell is said to have transferred more than $159,000 (£102,000) to a group credibly linked to militia violence.

One gang member, Chukwu Azikwe, told Platform: "We were given money and that is the money we were using to buy ammunition, to buy this bullet, and every other thing to eat and to sustain the war." He said his gang and its leader, SK Agala, had vandalised Shell pipelines. "They will pay ransom. Some of them in the management will bring out money, dole out money into this place, in cash."

The gang became locked in competition witha rival group over access to oil money, with payments to one faction provoking a violent reaction from the other. "The [rival gang] will come and fight, some will die, just to enable them to also get [a] share. So the place now becomes a contest ground for warring factions. Who takes over the community has the attention of the company."

Platform alleges that it was highly likely that Shell knew that thousands of dollars paid per month to militants in the town of Rumuekpe was used to sustain a bitter conflict. "Armed gangs waged pitched battles over access to oil money, which Shell distributed to whichever gang controlled access to its infrastructure."

Rumuekpe is "the main artery of Shell's eastern operations in Rivers state", with aroundabout 100,000 barrels of oil flowing per day, approximately10% of Shell's daily production in the country. Shell distributed "community development" funds and contracts via Friday Edu, a youth leader and Shell community liaison officer, the report said, an exclusive arrangement that magnified the risk of communal tension and conflict.

By 2005, Edu's monopoly over the resources of the Shell Petroleum Development Company of Nigeria (SPDC) had sparked a leadership tussle with Agala's group. The latter was reportedly forced out of the community and a number of people killed. Dozens of gang members and residents reportedly died in counter raids by Agala.

The inter-communal violence killed an estimated 60 people, including women and children, from 2005-08. Thousands more were displaced by fighting that left homes, schools and churches in ruins. Many still suffer severe malnutrition, poverty and homelessness.

Platform says the local conflict soon created regional instability. Displaced villagers were hunted down in the regional capital, Port Harcourt, and killed in their homes, schools and workplaces. Gangs active in Rumuekpe collaborated with prominent criminal networks in Rivers state and doubled as Movement for the Emancipation of the Niger Delta (Mend) militants.

Mend's activity in Rumuekpe seriously disrupted Shell's operations and sent shockwaves through world markets, the report notes, yet Shell paid little heed. One of the corporation's managers was alarmingly candid: "One good thing about their crisis was that they never for one day stopped us from production."

Platform interviewed Ex-gang members claimed Shell exacerbated the conflict by providing regular funding to both factions throughout.

In 2006, Shell is alleged to have awarded maintenance contracts relating to its oil wells, the Trans-Niger pipeline, its booster station and flowstation to Edu's gang. But after Agala's counter-raid left Rumuekpe "littered" with corpses, Shell apparently switched sides and started paying Agala. It paid whoever controlled access, even if they were known criminal gangs, Platform claims.

The allegations of ex-gang members were largely substantiated by the testimony of a Shell official, Platform claims. A manager confirmed that in 2006, one of the most violent years, Shell awarded six types of contract in Rumuekpe. Thousands of dollars flowed from Shell to the armed gangs each month.

The company eventually terminated some, though not all, of the contracts. But by then the violence had reached the Shell flowstation. A Shell manager, whose name has been withheld, is quoted as saying: "Somebody came in [to the flowstation] and cut off somebody's hand. We had to vacate the place. We stopped the contract entirely."

Other contracts to "maintain the pipeline right of way" continued throughout the entire conflict, as did one-off contracts created in response to specific threats, the report found.

Matthew Chizi, a local youth leader, said: "[Shell] were going to their job, doing their operation, servicing their manifold. They never cared that people were dying. They never did anything to call the crisis to order. Rather they were using military to intimidate the community."

Platform's report offers a damning assessment: "Shell was highly likely to be aware that it was helping to fuel the conflict in Rumuekpe, since company workers visited the community on a regular basis. Even if Shell was somehow unaware of the violence, media reports were publicly available.

"Members of the community reportedly wrote to Shell to request that the company stop awarding contracts to gang leaders such as Friday Edu. Through Shell's routine practices and responses to threats, the company became complicit in the cycle of violence."It adds: "The Rumuekpe crisis was entirely avoidable... Shell operated for decades without an MoU, polluted the community and distributed 'community development' funds through an individual who had lost the confidence of the community. Once conflict erupted, Shell paid the perpetrators of gross human rights abuses as long as they controlled access to oil infrastructure. The cumulative impact of Shell's mistakes was devastating."

Rumuekpe is just one of several case studies examined by the report which alleges, that in 2009 and 2010, security personnel guarding Shell facilities were responsible for extra-judicial killings and torture in Ogoniland. Platform calls on the corporation to break ties with government forces and other armed groups responsible for abuses, and to clean up environmental damage.

Rumuekpe is just one of several case studies examined by the report which alleges, that in 2009 and 2010, security personnel guarding Shell facilities were responsible for extra-judicial killings and torture in Ogoniland.

Shell insisted that it respected human rights and was committed to working with Nigeria to ensure that the country benefited from its natural resources. "We have long acknowledged that the legitimate payments we make to contractors, as well as the social investments we make in the Niger delta region may cause friction in and between communities," a spokesman said. "We nevertheless work hard to ensure a fair and equitable distribution of the benefits of our presence.

"In view of the high rate of criminal violence in the Niger delta, the federal government, as majority owner of oil facilities, deploys government security forces to protect people and assets. Suggestions in the report that SPDC directs or controls military activities are therefore completely untrue."

He added: "It is unfortunate that Platform has repeated several old cases, some of which are unsubstantiated and some proven inaccurate, because doing so obscures the good work which has been going on for many years. However, we will carefully examine its recommendations and look forward to continuing a constructive dialogue with the Nigerian government and other stakeholders to find solutions to these issues."