Mr Balkenende said the allegations were shocking if true
Military interrogators from the Netherlands abused dozens of Iraqi prisoners following the 2003 invasion, according to a Dutch press report.
Detainees were allegedly subjected to bright lights, soaked with water and exposed to high-pitched sounds, De Volkskrant newspaper said.
The newspaper quoted a defence ministry spokesman as saying things took place "not according to instruction".
The claims were made days before the country's parliamentary elections.
The ruling centre-right coalition currently has a slight lead in the polls.
Prime Minister Jan Peter Balkenende said that if the allegations were true they were "shocking".
Opposition politicians have demanded a recall of parliament to question the defence minister on the allegations.
"There is a smell of a cover-up coming off this," Labour leader Wouter Bos was quoted as saying by Dutch radio.
The Netherlands had around 1,400 troops in the southern Muthana province but most were withdrawn last year.
De Volkskrant said the abuses were carried out in Samawah south-east of Baghdad in November 2003 by members of the Dutch Military Intelligence and Security Service.
Dutch troops arrived home from Iraq last year
Prisoners were forced to wear darkened goggles, which were periodically removed to allow them to be exposed to bright light, the report said.
They were kept awake for long periods by being drenched with water and forced to listen to high-pitched sounds, it added.
The report said the incidents were reported to the military police, but there were no prosecutions and the matter was not made public.
Defence Ministry spokesman Joop Veen said, quoted by the newspaper: "Things did happen which are not part of the instructions."
But he said he did not know whether Defence Minister Henk Kamp had been informed.
"It happened a long time ago and you cannot remember everything," he said.