Augusto Pinochet's $26m (£14m) fortune was amassed through cocaine sales to Europe and the US, the general's former top aide for intelligence has alleged.

In testimony sent to Chilean Judge Claudio Pavez, Manuel Contreras alleges that Pinochet and his son Marco Antonio organised a massive production and distribution network, selling cocaine to Europe and the US in the mid-1980s.

According to Contreras, once Pinochet's ally and now a bitter enemy, Pinochet ordered the army to build a clandestine cocaine laboratory in Talagante, a rural town 24 miles from Santiago. There he had chemists mix cocaine with other chemicals to produce what Contreras described as a "black cocaine" capable of being smuggled past drug agents in the US and Europe.

Pinochet denied the charges. His son also denied the charges and said he would sue the former head of intelligence whom he called "a liar" and "a monster".

The details of Contreras' testimony were published first in the Chilean newspaper La Nación. The Pinochet fortune, amassed during the dictator's 1973-1990 rule, is now estimated at some $26m and is being investigated in Chile, the US and Europe.

The mastermind behind the cocaine operation, alleges Contreras, was Eugenio Berríos, a renegade chemist who was used repeatedly by Pinochet's secret police force, DINA, to run clandestine laboratory experiments. Earlier testimony and documents show that Berríos and the lab tested anthrax and botulism and were able to produce the deadly gas sarin.

The biological weapons were slated to be used against Pinochet's personal enemies and in a massive form against enemy troops in the event of an invasion by Argentina. The drug operation, says Contreras, was designed to raise cash for the dictator.

Contreras is serving two jail terms for human rights violations. As former director of DINA, Contreras is accused of running death squad operations that led to the murders of an estimated 3,000 Chileans in the mid-1970s.

The details of the cocaine operation came as part of an investigation into the murder of Colonel Gerardo Huber, a top intelligence operative and close friend of Contreras.

Huber was found murdered in the middle of an investigation that implicated the Chilean army in breaking a UN weapons embargo and sending arms to Croatia in 1991. Huber, who had extensive first hand knowledge of the deals and was expected to testify before Chilean judges, was kidnapped and his body dumped in a remote area.

With mounting evidence that Pinochet personally planned the 1992 execution of Huber, former allies such as Contreras have turned on Pinochet and are now alleging a stunning list of crimes and cover-ups.

The Chilean president, Michelle Bachelet, called on the courts to carry out further investigations.

While the allegations of cocaine sales are new, the alleged use of clandestine arms deals has been under intense investigation for two years in Chile. Investigators in Chile and England continue to look at the role of British Aerospace (now BAE Systems) in a number of payments to Pinochet advisers. Whether those fees were consultant fees or kickbacks is still under investigation.

In addition to the investigation for tax fraud and falsifying documents (passports), Pinochet also faces investigation for his role in "Operación Colombo", an organised massacre of dozens of regime opponents carried out by DINA in 1974 and 1975.