British troops accused of sexually abusing Iraqi boy, 14

If the teenager's allegations prove true, it could result in another mammoth Ministry of Defence payout just days after it agreed to pay £3million for the death of an Iraqi civilian and the torture of nine others.

The boy, known as Hassan and aged 14 at the time of the alleged incident, says he was rounded up with friends while trying to steal milk cartons from British base Camp Breadbasket in May 2003, a few weeks after the invasion of Iraq.

The reputation of British soldiers in Iraq faces another blow

He says they were beaten and forced to strip naked, and he was made to carry out a sordid sex act on a friend while soldiers mocked and took photos.

In a statement, Hassan alleges: 'We tried to run away but British soldiers caught me and started beating me and others using their vehicle's aerials. They were beating us very harshly.

'We were led inside the hangars while still being beaten. The beating became stronger when we were inside the camp.

'They ordered us to take off our clothes by gesturing to us to do so. When we refused they continued beating us, so we had to follow their orders. They made us sit on each other's laps. They were enjoying humiliating and abusing us. I wished I was dead at this moment.'

Died in custody: Baha Mousa with his family, who will receive a share of £3m compensation

He then describes being forced to perform the sex act on a boy called Tariq, adding that two other boys were made to do the same.

Mazin Younis of the Iraqi League, which is helping Hassan, now 19, and other alleged victims of abuse, accused the British of behaving 'worse than Saddam Hussein'.

Hassan, which is not believed to be his real name, is said to fear for his life if he is identified because of the shame of his ordeal.

His allegations come just days after the MoD agreed to pay almost £3million to the family of 26-year-old Baha Mousa, who died in British custody after being tortured, and nine others abused at the same time.

Hotel receptionist Mr Mousa sustained 93 injuries after he was arrested by soldiers from the Queen's Lancashire Regiment in Basra.

At a court martial, Corporal Donald Payne was jailed for a year after admitting 'inhumane treatment of prisoners'.

Asked about Hassan, an MoD spokesman said yesterday: 'This allegation of abuse has been referred to the Royal Military Police for investigation.

'All but a handful of the more than 120,000 British troops who have served in Iraq have conducted themselves to the highest standards of behaviour.

'All allegations of abuse are investigated thoroughly and, where proven, those responsible are punished and the abused are compensated.'