Allegations of prisoner abuse undermine America's standing in the world, William Hague has said in a speech to a Washington think tank.
William Hague is meeting Bush aide Karl Rove
The "loss of goodwill" could be as serious as the sharpest military defeats in the long-term, he said.
The shadow foreign secretary is in America to build bridges with George Bush's administration after a reported falling out over the war in Iraq.
He hopes to meet US Secretary of State Condoleezza Rice on Friday.
He said his visit would "pave the way" for David Cameron and Mr Bush to meet.
Mr Hague's speech comes as UN human rights investigators call for the closure the US detention camp at Guantanamo Bay.
A UN report on conditions in the Cuba camp says the US should try all inmates or free them "without further delay".
Addressing the Johns Hopkins SAIS Center for Transatlantic Relations in Washington DC, Mr Hague spoke of the "tensions created by the new realities of the War on Terror".
"Reports of prisoner abuse by British and American troops, however isolated - and accounts, accurate or not, of the mistreatment of detainees at Guantanamo and extraordinary rendition flights leading to the torture of suspects, have led to a critical erosion in our moral authority," he told the School of Advanced International Studies.
"This has resulted in a loss of goodwill towards America which could be as serious in the long-term as the sharpest of military defeats.
To illustrate the point, Mr Hague pointed to an opinion poll showing the majority of Europeans believed the US posed the greatest threat to international security, something he said was "ludicrous".
"We therefore must not forget that the most important quality of democracy, which we are trying to spread today in Iraq and elsewhere, is respect for the rule of law," he said.
"In standing up for the rule of law, we must be careful not to employ methods that undermine it. "
To do so would be to set a poor example to those who look to the Western world for leadership, and would undermine achievements among emerging and new democracies, Mr Hague said.
Mr Hague also argued the need for the US and the UK to remain close allies.
He said he still believed the Conservatives were right to support the war with Iraq, but added that "it seems obvious now that the great difficulties of uniting and securing such a country were seriously underestimated".
Mr Hague told BBC News he believed his US audience would take his comments "in the right spirit".
He told BBC Radio 4's Today programme that "mistakes have been made on Iraq".
'In the past'
"We still believe it was the right thing to do but that in the handling of Iraq over the last couple of years, many mistakes have been made," he said.
Mr Hague is in Washington with shadow defence secretary Liam Fox and George Osborne, shadow chancellor.
The trio had a 45-minute meeting with key Bush aide Karl Rove which Dr Fox has described as "extraordinarily relaxed".
It was Mr Rove who, in 2004, reportedly told ex-Tory leader Michael Howard: "You can forget about meeting the president full stop. Don't bother coming."
The Tories said any disagreements with the White House over Iraq were now "in the past".
Mr Hague was expected to meet Ms Rice on Friday.
All three members of the delegation will also hold talks with Republican senator John McCain, a possible candidate for the 2008 presidential race.
They will also meet senators from both the Republican and Democrat side, including Republican majority leader Bill Frist.