The Pentagon gave a controversial UK PR firm over half a billion dollars to run a top secret propaganda programme in Iraq, the Bureau of Investigative Journalism can reveal.

Bell Pottinger’s output included short TV segments made in the style of Arabic news networks and fake insurgent videos which could be used to track the people who watched them, according to a former employee.

The agency’s staff worked alongside high-ranking US military officers in their Baghdad Camp Victory headquarters as the insurgency raged outside.

Bell Pottinger's former chairman Lord Tim Bell confirmed to the Sunday Times, which worked with the Bureau on this story, that his firm had worked on a “covert” military operation “covered by various secrecy agreements.”

Bell Pottinger reported to the Pentagon, the CIA and the National Security Council on its work in Iraq, he said.

Bell, one of Britain’s most successful public relations executives, is credited with honing Margaret Thatcher’s steely image and helping the Conservative party win three elections. The agency he co-founded has had a roster of clients including repressive regimes and Asma al-Assad, the wife of the Syrian president.

In the first media interview any Bell Pottinger employee has given about the work for the US military in Iraq, video editor Martin Wells – who no longer works for the company – told the Bureau his time in Camp Victory was "shocking, eye-opening, life-changing.”

The firm’s output was signed off by former General David Petraeus – then commander of the coalition forces in Iraq – and on occasion by the White House, Wells said.