Human rights lawyers smeared British soldiers with false accusations of the torture and murder or innocent Iraqis, a government dossier claims. A report drawn up on the Prime Minister's orders claims Public Interest Lawyers (PIL) pursued claims against soldiers despite realising the allegations of abuse might have been 'untrue'. It comes after a public inquiry spent £31million exonerating British soldiers of claims they went they went on a killing and torture spree following a fierce battle in southern Iraq in 2004. Scroll down for video . 'False claims': The government may take legal action against Public Interest Lawyers and its chief lawyer, Phil Shiner, left, over allegations the firm smeared British soldiers with false allegations of torture and murder. Right is a picture of the aftermath of the Battle of Danny Boy shown to the five-year Al-Sweady inquiry . After five years of investigations, the Al-Sweady inquiry in December concluded there were some breaches of the Geneva convention following the battle. But it also ruled allegations of murder and torture were based on 'deliberate lies, reckless speculation and ingrained hostility'. Now the government is gearing up to sue law firms for millions of pounds in legal costs and calling for the PIL's chief lawyer, Phil Shiner, to be struck off. The MoD's dossier, seen by at least two Sunday newspapers, accuses PIL and another law firm, Leigh Day, of continuing to pursue the case even after evidence emerged that the allegations may be untrue. It suggests PIL had doubts about the credibility of its clients' evidence as early as March 2013 but failed to withdraw the allegations for another 12 months, Tim Ross of the Sunday Telegraph reported. That led investigators to take evidence from around 100 further witnesses, costing taxpayers an extra £780,000, the paper reported the Government's dossier as saying. It is also alleged that PIL used a local 'agent' to trawl Basra for potential victims, a breach of a ban on solicitors touting for business that brought hundreds of extra claims against the Army. The Birmingham-based law firm even continued to represent one claimant in a separate judicial review after he admitted to Al-Sweady investigators he had lied about his sister dying on the battlefield, the dossier alleges. Leigh Day are accused of failing to disclose a key document for six years, according to the Sun on Sunday. Thorough investigation: British soldiers with an Iraqi detainee following the Battle of Danny Boy in May 2004. Claims troops rounded up civilians for a killing and torture spree following the battle were dismissed . The claims came after the Battle of Danny Boy on May 14 2004, a fierce firefight which erupted when insurgents from the Mahdi Army ambushed a patrol of Argyll and Sutherland Highlanders. Their reinforcements, the 1st Battalion of the Princess of Wales's Royal Regiment, were also ambushed and after three hours of fighting 28 Iraqi fighters had been killed. Claims which subsequently emerged that enraged British soldiers had tortured and executed innocent local people in the aftermath of the battle were dismissed by the Al-Sweady inquiry, which was named for an alleged teenage victim. Former 1st Battalion the Princess of Wales' Royal Regiment corporal Brian Wood has previously told the Daily Mail he felt he and his colleagues who fought in thad 'done the right thing'. Mr Wood, 34, who was awarded the Military Cross for his role in the battle, according to the paper, said: 'We have been dragged through five years of hell. That in my view is a betrayal of our service. 'We did what we had to do as soldiers and we did the right thing.' Ann Hoolin, 50, the mother of soldier Scott Hoolin, told the paper her son was 'upset and disturbed' following the inquiry. 'To be accused of wrongdoing in the aftermath of what happened is disgraceful,' she said. Battlegroud: The Danny Boy checkpoint, near where insurgents from the Mahdi Army ambushed a patrol of Argyll and Sutherland Highlanders, then their reinforcements, leading to a fierce firefight . Sir Thayne Forbes, the retired judge who led the Al-Sweady inquiry, did find that there had been instances of ill-treatment during 'tactical questioning' of the detainees at Camp Abu Naji, near Majar-al-Kabir in southern Iraq, on the night of May 14/15. These included depriving the prisoners of sight, food and sleep, and using threatening interrogation techniques contrary to the Geneva Convention. It amounted to ill-treatment and fell below the high standard to be expected of the British Army, Sir Thayne said. After Sir Thayne's report, Public Interest Lawyers insisted the inquiry had been 'legally necessary, morally justified and politically required'. Responding to a request for comment on the allegations against PIL and Leigh Day, an MoD spokesman told MailOnline: 'The MoD is assisting the Solicitors Regulation Authority, which is investigating issues that came to light as a result of the Al-Sweady Inquiry.' PIL said last night in a statement seen by the Sunday Telegraph: 'The Al-Sweady inquiry thoroughly investigated the subject of these matters during which no criticisms were made of Public Interest Lawyers or Phil Shiner by the chair.' 'It is not appropriate to comment any further while SRA proceedings are ongoing. 'PIL and Mr Shiner are confident that they have acted in accordance with their professional obligations.'
Al-Sweady inquiry spent £31million probing the claims against soldiers . Government claims lawyers pursued claims they knew were made up . Dossier alleges they used local 'agent' to trawl Basra for new claimants . As a result the inquiry was prolonged for an extra year, the MoD claims . Government lawyers may sue law firms for millions in legal costs .