Art could not stop the war in Iraq but this photomontage – now on show at the Imperial War Museum North – can influence how that war is remembered

Tony Blair grins for his photograph as he holds up his smartphone to take a selfie. He's delighted with himself and what he's done. Behind him, black smoke and hellish flames bloom over an arid landscape. To many people, this grotesquely comic moment says it all – only Blair would think that's a good photo opportunity.

He did not, of course. This is not a real scene. Such is the reputation of the former prime minister and winner of three general elections that it somehow needs saying that he did not actually pose for a selfie in front of a blazing oilfield in Iraq.

What he did do is pose with his phone, apparently taking his own picture, at a photo opportunity with a group of naval cadets during the 2005 general election campaign. Political artists Peter Kennard and Cat Phillipps were combing through scores of pictures from the Guardian when they came across this slightly bonkers-looking portrait of a politician on campaign and realised it was just what they needed in their quest for a picture that told the truth about the Iraq war. "It was born out of two years of hard work to pull down the propaganda machine," say the artists. Using Photoshop they replaced the innocuous cadets with an apocalypse of fire. A satirical icon was born.

Photo Op, as their photomontage is called, has become the definitive work of art about the war that started with the invasion of Iraq in 2003. Ten years on from that war's beginning, this manic digital collage states succinctly what a large number people feel and believe about Blair's responsibility for the chaos that ensued. It says in a nutshell what protesters claimed at the time and what has become a generally accepted version of history – that Tony Blair was a monster charging into Iraq without scruples. Look, there he is, taking a selfie in front of his handiwork. Such is his notoriety that viewers really can take this as fact.

"Some people do," acknowledges Kennard. "He's maniacal enough for people to believe he actually would be happy photographing an oil explosion."

If an iconic picture is one that speaks to our feelings, this anti-war montage is an icon of our time. It was popularised with a little help from street artist Banksy when he included it in a Christmas grotto installation on Oxford Street, London. Campaign magazine praised it as an advert. Now it is on view at the Imperial War Museum in Manchester in an exhibition about contemporary art and war. Although the show includes conceptual responses to war by such art world luminaries as Steve McQueen and Jeremy Deller, it is "Tony Blair's crazed selfie", as a headline put it, that has grabbed media attention.

This is a startling success for an artist who has dedicated his imagination to opposing war since he was radicalised by Vietnam in the early 1970s. Kennard is a veteran of British radical politics and art who for four decades has been using photocollage to fight the powers that be. When he started, the only way to join different pictures together was with scissors and paste on the kitchen table. A famous political collage by the German artist Hannah Hoch is called "Cut with the kitchen knife". Kennard created many memorable images in support of CND using old-school cut-and-paste. In his 1980 version of John Constable's painting The Hay Wain, the cart crossing a placid East Anglian stream is loaded with cruise missiles.

That gem of satire is in the Tate – but the coming of Photoshop seemed to leave Kennard's cut-and-paste art behind until, in the runup to the Iraq war, he formed a partnership with Phillipps. They work under the name kennardphillipps and use digital collage to campaign against war and capitalism. Their work can be downloaded free of charge – they delight in people making their own versions of Photo Op, even what they claim was an uncredited adaptation by the National Theatre to promote a production of Brecht's war play Mother Courage. "It's available. It was used by Stop the War. It's been on book covers, it was even used by the British Medical Journal." In fact it's everywhere except on billboards owned by CBS in Manchester, which refused to carry this picture as an advert for the Imperial War Museum.

As Kennard explains, Photoshop is very different from the old tradition of kitchen-table photomontage that runs from Hoch and John Heartfield in Weimar Berlin to his CND collages of the 1980s. "With cut and paste the images are more disparate": they don't fuse into one image. The strange and devastatingly effective quality of the kennardphillipps portrait of Tony Blair is that it really does meld into a luridly believable scene.

The collective unconscious accepts this picture as true. This is very bad news for Blair. Any hope that history might vindicate him is fading fast. History is partly made by images. Ironically, kennardphillipps were not interested in making history when they created their digital image. They wanted to change the world, not record it: "We were trying to portray Iraq as it happened and not wait until afterwards and make a history painting."

In spite of their intentions, a history painting is what they've made. Art could not stop the war in Iraq. It can influence how that war is remembered. There's no use Alastair Campbell putting a grim-looking photo of Blair on the cover of his diaries and writing that it reflects Blair's seriousness and sincerity as he took Britain to war. The image that stands as popular history is the one of Blair taking his "maniacal selfie" in front of the flames of devastation.

Catalyst: Contemporary Art and War is at the Imperial War Museum North, Manchester until 23 February. Tel: 0161 836 4000. iwm.org.uk.