The document, quoted in Saturday's The Guardian newspaper, said US and Polish military vehicles had crushed 2600-year-old pavements in the city, a cradle of civilisation and home to one of the seven wonders of the ancient world.
Archaeological fragments were used to fill sand bags, the report said.
John Curtis, keeper of the museum's Ancient and Near East department, invited to visit Babylon by Iraqi antiquities experts, also said he had found cracks and gaps made by people who had apparently tried to gouge out the decorated bricks forming the famous dragons of the city's Ishtar Gate.
US military commanders set up a base in Babylon in April 2003, just after the invasion to topple Saddam Hussein, and handed it over to Polish-led forces five months later.
"This is tantamount to establishing a military camp around the Great Pyramid in Egypt or around Stonehenge in Britain," Curtis said in the report.
The Philippines military was also
stationed at Babylon
Babylon was the capital of ancient Babylonia, an early civilisation that existed from around 1800 BCE until 600 BCE.
The Hanging Gardens – one of the seven wonders of the ancient world – are located in Babylon.
In the report, Curtis described the decision to set up a base in the area as regrettable.
Lord Redesdale, the head of Britain's all-party parliamentary archeological group, said he was horrified at the destruction.
"Outrage is hardly the word, this is just dreadful," he said.