The accusations came from an Iraqi witness at London's High Court where families of six dead civilians have launched a test case against UK soldiers.
"The soldiers appeared to be thoroughly enjoying themselves as the beating was accompanied by laughter," said Kifah Taha al-Mutari.
He was arrested in September 2003, along with one of the six dead Iraqis, Baha Musa, in a raid on a hotel in Basra.
Musa later died in custody after alleged severe beatings.
"I could hear him moaning through the walls," said al-Mutari, whose statement was read out in his presence. "I heard him say: 'I am dying... blood... blood.' I heard nothing further."
Relatives of the Iraqi civilians who died, represented by British lawyer Phil Shiner, are demanding that judges force Tony Blair's government to open independent probes.
"I could hear him moaning through the walls. I heard him say: 'I am dying... blood... blood.' I heard nothing further"
Kifah Taha al-Mutari
The case is expected to last until the end of the week.
Families say five of the six Iraqis were shot dead after the war while going about their daily lives - at home, attending a funeral, driving home from work, visiting a judge and eating dinner - in the British-controlled southern region of Iraq.
The sixth and best-known case is Musa.
His former colleague al-Mutari gave the court a graphic depiction of their arrest, along with five other hotel workers.
"They took me and the other detainees to the hotel toilets and started to beat us with their fists and boots. They made us lie on the floor and soldiers stood on our heads," he said.
One of the detainees was made to stand inside a large oriental-style toilet where the flush was turned on to humiliate him, he added.
There are more than 8000 British
soldiers in Iraq
At a military base in Basra, soldiers later beat the hooded detainees on their neck, chest and genitals, al-Mutari alleged.
"We were given water by it being poured over the hood so that we had to lick droplets that seeped through the hood," he said.
Abu Ghraib images
"Freezing water was poured on to us and this was very painful."
One soldier asked them to "dance like Michael Jackson" while others made them recite names of English or Dutch footballers "or we would be beaten severely", al-Mutari added.
Abuse allegations against occupying soldiers came to a head earlier this year with graphic images of US soldiers' mistreatment of Iraqi prisoners at the Abu Ghraib jail.
"UK armed forces operate in Iraq in accordance with relevant English law"
If the High Court allows independent inquiries into Wednesday's cases - involving five men and one woman - that could pave the way for many more claims, plus possible prosecutions and large compensation bills.
Britain's Ministry of Defence said it was "robustly" contending the Iraqis' central argument that the European Convention on Human Rights should apply to UK soldiers and that their own internal investigations were inadequate.
"UK armed forces operate in Iraq in accordance with relevant English law," a ministry spokesman said.
"It is not the position of the defendant and the UK government that the conduct of British forces in Iraq should not be subject to stringent standards of control and accountability," added government lawyer Christopher Greenwood.
In papers presented to the court, he said army prosecutors had recommended charging soldiers in Musa's case.
Britain sent 45,000 troops to the Gulf for last year's invasion and still has 8100 soldiers in Iraq.