Conflict diamonds are to be used to fund a new campaign of violence by President Robert Mugabe's regime against his political opponents in Zimbabwe as elections loom.

Environmental experts are blaming the "utter failure" of the Kimberley Process, set up in 2003 to monitor conflict diamonds and stop them reaching mainstream outlets, for allowing Mugabe and his allies to siphon off millions of dollars in profits from Zimbabwean diamonds, which have now gone on sale.

There has been consistent criticism of the Kimberley Process since the decision to lift a ban on the sale of the gems from the newly discovered Marange fields in Zimbabwe, despite evidence of human rights abuses and killings by Mugabe's soldiers. Human Rights Watch claimed the decision "betrayed the trust" of miners, consumers and retailers.

This weekend, Anjin Investments, a Chinese-led venture in Zimbabwe in partnership with Mugabe's government, announced it was now the world's biggest diamond producer, with a stockpile of three million carats to sell. The company, which thanked the Kimberley Process for its backing, is funding a new military college in the country.

Reports from Zimbabwe suggest the feared Central Intelligence Organisation (CIO), Mugabe's secret police, is flush with cash, and has bought hundreds of vehicles and weapons from China in recent months. Salaries have been increased and thousands of new officers are being trained, raising concerns that they will be used to intimidate voters in next year's elections.

That is despite the official reduction in the CIO's budgets after the finance minister, a member of the Movement for Democratic Change, blocked extra funding in protest at its political bias towards Mugabe's Zanu-PF party. Campaigners also suspect many tens of millions of dollars from diamond production are bypassing official channels into the pockets of corrupt politicians and businessmen.

Mike Davis, of the campaign group Global Witness, which walked out of the Kimberley Process over its decision on Zimbabwe this month, said no safeguards remain over the jewellery we buy. The "blood diamond" had been allowed to flood back on to the world markets, he said, and in the case of Zimbabwe, would undermine all economic sanctions against Mugabe.

"It takes money to pay for violence and human rights abuses and the tap had been turned off for Mugabe and his allies," he said. "Now the Kimberley Process has turned it back on by allowing them to sell their diamonds despite clear evidence of human rights abuses and killings. The benefits from diamond sales in Zimbabwe are going directly to Mugabe and his allies. The Kimberley Process is now a fig leaf for the diamond industry."

In the strongest attack yet, Global Witness is calling for a new international body to fill the void: "They have dithered around wringing their hands, and now effectively have aided and abetted the return of the blood diamond. They flunked it, dropped the ball and ordinary Zimbabweans will pay the price. It's now a myth that there are any controls over diamonds."

The issue of the profits from diamond mining being used to finance bloody conflicts in the developing world came to prominence in 2000 with the UN-commissioned Fowler Report. It showed that UN sanctions had failed to stop the Angolan civil war being financed by a trade in diamonds that saw the company De Beers openly buy $500m worth of Angolan diamonds, legal and illegal, in 1992 alone.

Davis, who took part in a recent Kimberley Process inspection of Zimbabwe's new diamond fields, said those days had returned, as diamonds from Ivory Coast, Zimbabwe and Venezeula all escape sanctions despite evidence of corrupt and abusive practices involved in their production. The trip to Zimbabwe was marred by constant interference and obstruction, yet the official report made no mention of the obstructive behaviour of the Zimbabweans, he said.

Davis called on the Kimberley Process to "admit once and for all" that it was simply an organisation by which governments and the industry exchange information and has no practical connection with the battle for the ethical production or sale of diamonds.

"It is effectively a forum in which governments get together and swap ideas about how to better control export and import of diamonds and how to collect tax most efficiently. That's what the Kimberley Process does – no more, no less," he said.

Diamonds remain an enormously profitable business for a select few, and the trade is frequently linked to money- laundering and criminal gangs as well as the wholesale resource stripping of countries such as Congo and Angola. There were deep vested interests in keeping the trade as murky as possible, said Davis.

For the ordinary consumer, anxious not to fund a blood-stained trade, it remains all but impossible to find out where diamonds come from.

While one or two large firms operate "closed supply lines" – buying direct from a mine in Canada or other more easily ethically monitored countries and tracing their production all the way into their display cabinets – this is not financially viable for most jewellers.

Jeremy Hoye runs a designer jewellers chain. At its main store in Brighton he said around one in 20 customers asked about the origin of diamonds.

"I'd be happier not using diamonds at all, it's so hard to know where they are coming from," he said.

"You can tell by the shape where they were cut, but nothing more, and without a credible body to certify them it's a lottery. Jewellery should be about design. The issues about what is ethical in jewellery are muddied – people talk about ethical gold but as most gold around now is recycled, it becomes a bit of a nonsense."

• This article was amended on 21 December 2011 to correct Central Information Organisation to Central Intelligence Organisation.