Leaked documents from the Afghanistan war appear to confirm that Australian forces are backing a local war lord who has been extorting money from NATO convoys carrying supplies to Coalition forces.

Australian troops are working with Matiullah Khan, a powerful war lord in the southern Uruzgan province.

Matiullah, through his private militia, earns millions of dollars a year guarding NATO road convoys and he commands a militia of over 2,000 armed men.

According to Matiullah himself, he works closely with the Australian forces in Uruzgan.

"The Australians have changed their tactics, they were going on missions alone. The Australians did not know about the Afghan traditions. Now we work together," he said.

"For the last six to eight months I have given them my soldiers. Since then there hasn't been any problems in the whole province and nobody has been angry with the Australians."

But according to a report in the intelligence database leaked to the Wikileaks organisation, Matiullah's men were caught red-handed in an extortion attempt on the very road they were paid to protect in late November 2009.

A NATO fuel convoy reported it had been held up by a group of 100 insurgents armed with heavy machine guns.

They demanded payment of $3,000 for each truck to pass and eventually it became clear that they were not insurgents, but Matiullah's militia.

US forces sent two helicopters and an armoured convoy to negotiate, but Matiullah refused to budge, saying he needed the money to run his operation.

Six hours later, after many desperate calls to government officials in Kabul, he let the convoy through without payment.

The Australian Defence Force has refused to comment on any extortion attempts by Matiullah Khan, but said that he is an influential figure in the Uruzgan community and Australian troops engage with him on this basis.

It comes after a US government report released last month labelled Afghan security companies and private militias a "vast protection racket".

According to Dr Zalmai Zabuli, head of the Parliamentary Complaints Committee of Meshrano Jirga, the companies even resort to paying insurgents to attack the convoys, to make their services more valuable.

"In this case usually the leaders of the security company are paying the money for the Taliban or other local people to attack the convoys, to show the foreigners that if you don't pay for us, then there's a lot of problems that can be created," he said.

There are also concerns that security companies have spawned a whole new range of war lords, growing rich on the huge inflow of foreign cash.

Wardak Governor Muhammad Haleem Fedayee says the security companies are making the country far more dangerous.

"The complaints are there about the security companies assisting the Taliban," he said.

"Also on the other side we also receive reports and complaints from the public that there is a negative competition among the security companies themselves. They are sometimes attacking each other."

US politicians are becoming increasingly concerned that the massive amounts of money they are pumping into the Afghan economy could actually be fuelling the insurgency.