John Reid, the Secretary of State for Defence, admits that he knows of "alleged deaths in custody" and other "serious prisoner abuse" at al-Jamiyat police station, which was reopened by Britain after the war.

Militia-dominated police, who were recruited by Britain, are believed to have tortured at least two men to death in the station. Their bodies were later found with drill holes to their arms, legs and skulls.

The victims were suspected of collaborating with coalition forces, according to intelligence reports. Despite being pressed "very hard" by Britain, however, the Iraqi authorities in Basra are failing to even investigate incidents of torture and murder by police, ministers admit.

The disclosure drags Britain firmly into the growing scandal of officially condoned killings, torture and disappearances in Iraq. More than 170 starving and tortured prisoners were discovered last week in an Interior Ministry bunker in Baghdad.

American troops who uncovered the secret torture chamber are also said to have discovered mutilated corpses, several bearing drill marks.

Adam Price, the Plaid Cymru MP for Carmarthen East and Dinefwr, who uncovered the death at al-Jamiyat police station, called for an immediate UN investigation into police torture. "The Government keeps on saying that respect for human rights is a pre-condition of withdrawal. Well, it should be a pre-condition for UK soldiers to continue risking their lives in Iraq," he said.

Mr Reid said: "I am aware of serious allegations of prisoner abuse at the Jamiyat, including two deaths in custody. We take this very seriously. We have been pressing the Iraqi authorities very hard to investigate these allegations thoroughly and then to take the appropriate action."

Ministry of Defence sources privately confirm that the two SAS soldiers seized and held in Jamiyat in September were investigating allegations of police torture prompted by the discovery of the bodies.

British forces in armoured vehicles smashed their way into the station to rescue them, but officers have admitted they are powerless to protect civilians in southern Iraq from militias, and military patrols have been withdrawn from central Basra in the wake of the September clashes.

In the US-controlled districts of Iraq, some senior military and intelligence officials have been accused of giving tacit approval to the extra-judicial actions of counter-insurgency forces.

Critics claim the situation echoes American collaboration with military regimes in Latin America and south-east Asia during the Cold War, particularly in Vietnam, where US-trained paramilitaries were used to kill opponents of the South Vietnamese government.