Three soldiers were jailed for mistreating suspected looters
Nine Iraqi men suffered unlawful assaults while being detained by British troops, the MoD has said.
The Iraqis are bringing a claim for civil damages against the MoD for physical and sexual abuse at a military food depot near Basra in May 2003.
Their solicitors said the MoD made the admission in papers connected with the damages action, but had not commented on the details of the treatment.
The MoD said it had admitted liability under Iraqi law but not British law.
Three soldiers from the 1st Battalion The Royal Regiment of Fusiliers were court martialled and jailed in February 2005 for mistreating suspected looters at Camp Bread Basket in Iraq.
Sapna Malik, of solicitors Leigh Day & Co, said: "The maltreatment of the men was hideous, humiliating and degrading and the legacy lingers with them to this day.
"We hope that today's admission marks the MoD's willingness to resolve the claims fairly so that the men can try to finally move forward with their lives."
The incident emerged when a fourth soldier, Fusilier Gary Bartlam, took photographs he had taken to be developed in Tamworth, Staffordshire, and a shop assistant alerted police.
In one picture L/Cpl Mark Cooley was shown driving a forklift truck with a bound Iraqi prisoner suspended from the prongs.
L/Cpl Cooley and Cpl Daniel Kenyon, both from Newcastle-upon-Tyne, were found guilty of taking part in the mistreatment of captured looters. L/Cpl Darren Larkin, from Oldham, pleaded guilty to assaulting an Iraqi prisoner.
The MoD would not comment on the details of the case while litigation was ongoing.
A spokesman said: "The MoD settles compensation claims when there is a legal liability to do so.
"Such liability does not exist during the combat phase of an operation, but compensation is paid where it is judged that UK armed forces have been negligent in causing injury or damage post cessation of hostilities."