Amnesty International accused British soldiers in Iraq on Tuesday of killing civilians, including an eight-year-old girl and a wedding guest, when they posed no apparent threat.
With Britain already battling a growing Anglo-American scandal over alleged mistreatment of Iraqi prisoners, the report, and a legal ruling allowing relatives of Iraqi victims to take the government to court, threatened to inflict yet more damage on the reputation of UK troops.
Lawyers acting for 12 Iraqi families who allege their relatives were killed by British troops won the right in London's High Court to challenge the government - a case which could lead to criminal proceedings against soldiers or the government for unlawful killing.
It was not immediately clear whether the cases cited by Amnesty overlapped with those before the High Court.
Amnesty said UK troops' actions had breached international human rights standards, and accused Britain of undermining the rule of law in Iraq by failing fully to investigate the suspected unlawful killings.
"The British Army's response to suspected unlawful killing of civilians has undermined...the rule of law," it said.
"It has failed to conduct investigations into all killings of civilians, and the investigations that have been carried out have failed to ensure that justice was done, and seen to be done in the eyes of the victims' families."
Britain's Defence Secretary Geoff Hoon rejected suggestions that troops had not acted properly but pledged to investigate.
"I simply do not accept that British troops have behaved improperly or unlawfully," he told Sky News television. "But obviously we do treat each of the allegations made by an organisation like Amnesty International seriously."
"I'm not ruling out the possibility that in some of the cases that Amnesty have highlighted there may be further matters that require further investigation and the possibility even of legal proceedings."
In court, Judge Justice Andrew Collins ruled that 12 Iraqi families whose loved ones were killed should be given permission to argue that the European Convention on Human Rights applied to their cases.
"The way things are going in Iraq it seems to me it is in everyone's interest that this point should be decided as soon as possible," he said.
The families' lawyer, Phil Shiner, argued that because the Iraq war was officially over when the victims died, and Britain was an occupying power, the European Convention should apply.
He said many of the deaths occurred when the victims were at home or going about normal life. One man was working on a farm, another was fishing and another was returning home in his car.
Amnesty said UK troops had been involved in the killings of at least 37 civilians since May 1 2003, when the war to topple Saddam Hussein officially ended.
It highlighted nine cases in the southern Iraqi areas of Basra and Amara, including eight-year-old Hanan Saleh Matrud, shot dead on August 21, 2003 near her home village.
An eyewitness told Amnesty Hanan was killed when a soldier aimed and fired a shot from around 60 metres (yards) away, but the army said she was killed accidentally by a warning shot.
Thirteen months after the fall of Saddam Hussein, the administrations of both Prime Minister Tony Blair and US President George W. Bush have been rocked by allegations about troops' behaviour.
The claims hit the headlines when graphic images were splashed across media of Iraqi prisoners being humiliated.
More damage has been wrought by the revelation that the International Committee of the Red Cross alerted the British government with a report months ago on mistreatment of Iraqi captives. The ICRC said abuse was "in some cases tantamount to torture".
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