The Washington Post on Saturday quoted a military lawyer as saying Captain Donald Reese told him Lt Gen Ricardo Sanchez and other senior military officers were aware of the abuse at the prison.
The military lawyer, Capt Robert Shuck, is assigned to defend Staff Sgt Ivan "Chip" Frederick of the Army Reserve's 372nd Military Police Company.
Frederick is one of the seven members of the company facing criminal charges for abusing Iraqi inmates. Reese is the company commander.
According to the transcript of an open hearing on 2 April at Camp Victory in Baghdad, Shuck said Reese told him General Sanchez was present and witnessed some of the abuse.
"Are you saying that Captain Reese is going to testify that General Sanchez was there and saw this going on?" Shuck was asked by a military prosecutor according to the transcript.
"That's what he told me," Shuck replied. "I am an officer of the court, sir, and I would not lie. I have got two children at home, I am not going to risk my career," he said.
When contacted by the Washington Post, Brig Gen Mark Kimmitt, the senior military spokesman in Iraq, said Sanchez was unavailable for comment, but would respond later.
The transcript marks the first allegation Sanchez or other senior military officers were aware of the prisoner abuse while it was happening.
The United States has till now blamed a handful of low-level military police for the abuse.