A "structured system" is needed for offering compensation to the families of Iraqi civilians killed by British troops, a leading think tank has warned.

The recommendation, from the Institute for Public Policy Research, comes after the case of two Kosovan Albanians, who last week won a court battle over a shooting involving paratroopers during a peacekeeping operation.

Although the report raises concerns over the numbers of claims against the Ministry of Defence, author David Mepham said that seven families have already received funds.

"If we are going down this track of saying compensation is appropriate we should do that in a structured and comprehensive way," he said.

"If we invade Iraq on human rights grounds and killed quite a lot of civilians as a result there should be a responsibility on our behalf to pay compensation."

In his study, Mepham, a former special adviser to Clare Short when she was international development secretary, argued that the concerns of the UK government towards human rights has been damaged by the wars on terror and Iraq.

Britain's willingness to export arms to regimes seen as "on side" have made the world less secure, he argued.

"Democratic societies that respect human rights, particularly the rights of minority communities, are the best defence against political and religious extremists and terrorism," he said.

"The new global security environment should lead the UK to strengthen, not weaken, its commitment to human rights issues like arms exports, reform of the UN and the responsibilities of UK companies when investigating overseas."