Baha Musa's body was returned to his family covered in bruises and with his nose broken, after he and seven other men were arrested by British forces in September 2003, according to the Sunday edition of the Independent newspaper.
They were held in military custody for three days, the UK paper reported.
The newspaper said in its report by veteran Middle East correspondent Robert Fisk that it had seen military and medical records of the case, showing that the father of two suffered his injuries in a severe beating.
British military authorities offered Musa's family $8000 in compensation, providing they were not held responsible for his death, but his relatives planned to take Britain's Ministry of Defence (MoD) to court.
A Ministry of Defence spokeswoman declined to give details about the case. "There is an ongoing military police investigation into a death that we had in custody," she said.