An investigation has begun into claims British troops assaulted the prisoner before throwing him from a lorry.
The claims were made in the Daily Mirror which carried photos allegedly taken during the man's ordeal.
Tony Blair says that if the photos are authentic this is "completely and totally unacceptable".
The pictures show a hooded man being urinated on, a boot placed on his head, and a rifle butt in his groin.
However the BBC's defence correspondent Paul Adams says sources close to The Queen's Lancashire Regiment believe many aspects of the photographs are suspicious.
They also believe the wrong type of Bedford truck is shown in the background - a type never deployed in Iraq.
Colonel Bob Stewart, who commanded British forces in the Balkans, told BBC News Online he could not be sure whether the photos were genuine or not.
As well as questions over the rifle, vehicle and hat, he also pointed out that there were discrepancies over clothing and the condition of the captive.
"The shirt looks like a football shirt. Is that the sort of shirt that a captive might be wearing, slightly silky with an Iraqi flag?
"Why is it not dirty and dishevelled, why is the man not showing some signs of damage after eight hours of beatings?
"Why would the soldiers be wearing webbing that is undone? Normally soldiers are very particular about that."
But Colonel Stewart said whether the photos were proven to be real or fake the damage done to Iraqi and Arab opinion was "like a cork out of a bottle", acting as a recruiting sergeant for the insurgents.
"What happens to the next British soldier who is taken hostage?"
He said if it was real, those behind the captive's ordeal, or fake, those responsible for mocking it up, were responsible for extra casualties and deaths.
Foreign Secretary Jack Straw told the BBC's Breakfast with Frost programme: "There is a very high-level investigation taking place. The allegations are terrible."
But he refused to be drawn on what compensation any victims of maltreatment would be offered, or on the outcome of the inquiry.
"Of course it follows we will accept whatever obligations there are upon us."
Tony Blair has said if there had been any abuse it was "exceptional", and should not detract from the good work being done by UK armed forces in Iraq.
However he stressed if the photos were genuine it was totally unacceptable.
"We went to Iraq to get rid of that sort of thing, not to do it," he added.
The Mirror says the pictures were handed over by British soldiers from The Queen's Lancashire Regiment who claimed a rogue element in the army was responsible for abusing prisoners and civilians.
The images have already been seen in the Middle East
The soldiers allege the unnamed captive was threatened with execution and had his jaw broken during his eight-hour ordeal.
The reason for making the photos public was, the soldiers said, to show why the US-UK coalition was encountering such resistance in Iraq.
Army spokesman Roger Goodwin, on behalf of The Queen's Lancashire Regiment, said there was "clearly some form of link to the regiment".
"But the precise form of that link, including whether the soldiers involved in the alleged atrocities were members of the QLR, needs to be established.
He added: "There is no place in our regiment for individuals capable of such appalling and sickening behaviour."