Iran has secretly paid Iraqi insurgents hundreds of thousands of American dollars to kill British soldiers, according to a leaked government document obtained by The Telegraph.

The allegations are contained in a confidential "field report" written by a British officer who served in Basra during one of the most dangerous periods of the conflict. The report, which has never been made public, shows the full level of Iran's involvement in the insurgency for the first time.

The document states that the Jaish al-Mahdi (JAM) – also known as the Mahdi Army – one of the most violent insurgent groups operating in Basra, used money from Iran to recruit and pay young unemployed men up to $300 (£150) a month to carry out attacks against the British. The findings have been passed to the highest levels in the military.

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The leak comes at a time of rising tension between Iran and the international community, as Tehran continues to stonewall UN inquiries into allegations that it has carried out research to develop a nuclear weapon.

The report, "Life Under Fire in the Old State Building", details the activities of British troops under the command of Major Christopher Job, of the 2nd Lancashire Regiment, between November 2006 and March 2007.

In the report, Major Job discloses that in the course of five months his base was attacked 350 times. Old State Building, which is in the centre of Basra, is the most-attacked British base in recent history.

In an attempt to discover who was behind the attacks, the officer says he established a network of informers, who supplied him with detailed intelligence on the actions of the insurgents and who was behind their funding.

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