Three British soldiers are being investigated by military lawyers over the alleged abuse of an Iraqi detainee, a court has been told.
They have been referred to prosecutors and could face war crimes charges.
The High Court is being asked to order a public inquiry into mistreatment claims by more than 200 civilians in UK-controlled detention sites in Iraq.
A government lawyer revealed the ongoing inquiry as he argued that a public probe was unnecessary.
The BBC's world affairs correspondent Caroline Hawley said the allegations stemmed from a video which appeared to show the soldiers screaming threats and obscenities at a man arrested on suspicion of carrying out a mortar attack.
One soldier was heard to shout, "You will hang for this", at the detainee, who was later released without charge, she said.
The man, who has not been named, also claimed he was beaten, deprived of sleep and denied food and drink, our correspondent added.
The case involving the three soldiers, who worked as interrogators in Iraq, is currently being examined by the Director of Service Prosecutions.
The referrals were mentioned in court by Philip Havers QC, appearing for Defence Secretary Liam Fox.
Another government lawyer, James Eadie QC, then told the court the war crimes charges were among a range of options if - "and it is a very big if" - it was decided to pursue the allegations.
A Ministry of Defence spokesman said later: "We have acknowledged that if these allegations do prove to be true then they could be prosecuted as war crimes under the ICC [International Criminal Court].
"That is why we have set up the Iraq Historical Allegations Team to investigate allegations thoroughly. They remain allegations and if untrue, making such serious allegations falsely would be a heinous slur on members of the Army."
The judges will announce their decision on a public inquiry at a later date.
Phil Shiner, solicitor with Public Interest Lawyers, which is representing the Iraqis, described the announcement in court of the referrals as "a breakthrough".
The group of lawyers has documented a mounting number of complaints over recent months.
The allegations of mistreatment include sexual abuse, food, water and sleep deprivation, prolonged solitary confinement, mock executions and being denied clothes.
In 2006, Cpl Donald Payne became the first British soldier to admit to a war crime in connection with the death of Iraqi hotel worker Baha Mousa.
Mr Mousa was found dead after being held in British military custody in the southern Iraqi city of Basra in 2003.