Bhopal is a calamity without end. On 3 December 1984, clouds of poison leaking from a Union Carbide pesticides plant brought death to thousands in this central Indian city. Today, fully a quarter of a century later, victims of this, the world's worst industrial disaster, are still being born.

Here, in neighbourhoods where people depend on water contaminated by chemicals leaking from the abandoned factory and to mothers exposed to the toxic gas as children, brain damaged and malformed babies are 10 times more common than the national average. Doctors at Bhopal's Sambhavna Clinic say that as many as one in 25 babies are still born with defects and developmental problems such as a smaller head, webbed feet and low birth weight.

Those who were mere children when the fumes overcame this city of a million are suffering, too. Painful skin lesions, stomach problems and raw, itchy eyes are common complaints among thousands of families, some of whom moved to Bhopal only in recent years. And the clinic says that Bhopal now has some of India's highest rates of gall bladder and oesophageal cancers, TB, anaemia and thyroid abnormalities. Young girls start menstruating much later than normal and experience painful gynaecological problems, which often lead to hysterectomies at a young age.

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These problems, say campaigners such as the Bhopal Medical Appeal (BMA), are linked to the continuing pollution of parts of the local water supply by chemicals such as chloroform and carbon tetrachloride. Families have no choice but to use ground water for washing, cooking and drinking when safe sources run dry, according to new research that will be published by the BMA on Tuesday. The study found higher levels of several carcinogenic chemicals in water sources this year compared with last year – strongly suggesting that future generations will be poisoned unless the area is decontaminated. This flies in the face of recent claims by state and national ministers that the site is clean.

Meanwhile, the legal fight for the chief executive of Union Carbide to be tried for his company's alleged negligence is no nearer success than it was 25 years ago. Amnesty International will this week call on the Indian government and Dow Chemicals, which bought Union Carbide in 2001, to take "urgent and decisive action" to ensure that the accused appear in court – more than 20 years after arrest warrants were first issued. Dow continues to deny any responsibility for the criminal case.

It was in the early hours of 3 December 1984 that 27 tonnes of methyl isocyanate gas – 500 times more toxic than cyanide and used to manufacture the pesticide Sevin – began to leak from the Union Carbide plant into the surrounding areas. Hundreds of thousands were injured by the gas as they slept. Men, women and children living in the shanty settlements just over the factory fence woke up, gasping for breath and blinded by the gas as it rapidly dispersed.

Around 8,000 people are now believed to have died within the first 72 hours. Hundreds died in their beds; thousands more staggered from their homes to die in the street. Another 15,000 are estimated to have died as a result of the gas exposure since then, often from painful and horrific damage to their lungs, heart, brain and other organs, according to Amnesty International. An estimated three-quarters of the area's pregnant women spontaneously aborted their babies within hours or days after "that night". Hundreds more babies have since been born with deformities such as missing limbs, abnormal organs, misshapen heads and tumours. None of the plant's six safety systems was operational that night.

Even today, Amnesty International estimates that 120,000 people exposed to the gas have chronic medical conditions. While the factory was closed down in 1985, another 30,000 people have become sick from water contaminated by the chemical waste buried underground or dumped in nearby ponds, according to health workers in Bhopal. Children and livestock are still spotted playing and grazing on the grass that hides the waste because the local government has failed to secure the site properly.

Hazira Bee, 53, lives in J P Nagar, one of the worst affected areas to the north of the city. On the night of the disaster, after awakening to the smell of burning chilli, she and her husband ran with their children, their eyes and lungs stinging with the gas. In the panic, her middle son, Mansoor Ali, aged four, was left behind. He has spent the majority of his life in and out of hospital, severely weakened by chronic lung damage. His daughter, now aged three and a half, was unable to hold her head up or turn on her side until she was 18 months old; she has just started to walk. All Hazira's family have suffered from respiratory, neurological and skin conditions since the leak.

Hazira said: "The scene inside the factory was terrible. I saw dead bodies and injured people with foam coming out of their mouths. Since the gas leak we have all been sick. Because of this, my children couldn't study and now they can't get good jobs. Today I am the only breadwinner of the family. If this disaster would have taken place in America, the US government would have taken good care of their citizens. We want UC to take their waste back to America."

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The BMA water analysis report supports previous studies by Greenpeace which established that the areas north of the disused factory are worst affected because the ground water runs in that direction. The Sambhavna Clinic – set up 13 years ago with private donations – sees 150 people like Hazira and her family every day. There are 23,000 people who were either exposed to the gas or who have since used contaminated water supplies registered with chronic conditions such as liver disease, paralysis and severe anaemia. Doctors report new patients – adults and children – at the clinic every day.

According to Satinath Sarangi, a founder of the Sambhavna Clinic, tuberculosis is rife among people whose immune systems have been worn down by chronic exposure to poisonous water. Cancer clusters and children born with deformities are another distinction of the area, found by the clinic's researchers who are conducting a door-to-door survey of tens of thousands of local people.

Earlier this year, the Indian Council of Medical Research finally bowed to public and international pressure by restarting a government-funded research programme to understand the alarming rates of still births, cancers, neurological and gynaecological problems seen by Bhopal's doctors. Charities and pressure groups had been left to study the long-term health problems of Union Carbide's victims after ICMR controversially abandoned its research programme in 1994.

The $470m out-of-court settlement made by Union Carbide in 1989 is regarded as grossly inadequate by the city's health professionals and survivor organisations. It was based on early estimates of only 3,800 deaths and 102,000 injured, and the maximum amount any victim received was $1,000 – about 11 cents a day over 25 years. Had compensation been the same as for those exposed to asbestos under US court rulings against defendants that also included Union Carbide, the liability would have exceeded $10bn.

The Dow Chemical Company insists that it has no responsibility for toxic legacy. Yet internal correspondence, seen by The IoS and Amnesty, between different Indian ministries (including the Prime Minister's Office) shows that the company continues to lobby Indian ministers in an attempt to close down the ongoing civil cases. These could require Dow to decontaminate thousands of tonnes of polluted soil.

Colin Toogood, of the BMA, said: "We want to see a full clean-up of the disaster site and surrounding area, including the ground water aquifer – a huge undertaking, but reasonable considering this was the world's worst industrial disaster. The $470m compensation payout only ever pertained to people affected by exposure to the gas on that night. It does not, and never did, cover children born with terrible defects as a result of their parent's exposure; people being affected by the environmental or water contamination; and it does not cover the environmental contamination itself."

Tom Sprick from Union Carbide, said: "Neither Union Carbide nor its officials are subject to the jurisdiction of the Indian court since they did not have any involvement in the operation of the plant... The government of India needs to address any ongoing medical and health concerns of the Bhopal people."

But according to Tim Edwards, a trustee of the BMA and author of the forthcoming Amnesty report, this conveys contempt for the process of law. He said: "In every form of civilised society it is the judicial system that decides whether an accused has a case to answer. India's courts have decided that Union Carbide and its new owner, Dow, do – but the company sticks two fingers up."

Scot Wheeler, from Dow, responded: "Attempts to attach any liability to Dow are misplaced... like all global companies, it is common for Dow leaders to meet with government leaders and officials wherever we do business and have plans to grow. It is also common for companies to discuss challenges and opportunities related to investment."