A discredited £60 million Government probe into allegations against Iraq war veterans will be shut down within months, the Defence Secretary has announced after pressure from MPs.
The Iraq Historic Allegations Team (IHAT) will close in the summer and around 20 cases will be dealt with by the Royal Navy Police, Sir Michael Fallon said.
It comes after a scathing report by the Defence committee said the probe had subjected serving and retired troops to "deeply disturbing" treatment and had "directly harmed" UK defences.
MPs set out a litany of failures about the way the Ministry of Defence, which created IHAT, has handled the probe.
They blamed the department for empowering law firms to generate cases that lacked credibility on an "industrial scale".
And they criticised it for "serious" failings after it handed over more than £110,829 to Abu Jamal, an Iraqi middleman, while he was employed by Public Interest Lawyers (PIL), the defunct firm behind many of the claims.
Phil Shiner, who ran PIL, has been struck off after being found to have acted dishonestly in bringing murder and torture claims against Iraq war veterans.
The committee said it was "deeply concerned" the MoD had used public funds to cover the costs of those who were bringing "spurious and unassessed" cases against the war veterans and about the lack of support for those accused.
IHAT investigators used "intimidatory tactics", including "deeply disturbing" methods such as impersonating the police. Serving and retired soldiers have also been spied on, the report found.
The damning report said the catalogue of serious failings in IHAT's conduct pointed to a loss of control in its management.
It added: "Both the MoD and IHAT have focused too much on satisfying the accusers and too little on defending those under investigation."
IHAT was set up by Labour in 2010 to assess claims of abuse by Iraqi civilians against troops who had served there.
It started out with 165 cases but the allegations rocketed. Most were generated by two law firms, PIL and Leigh Day.
The report states: "It is clear to us that legal firms were empowered by the MoD's approach to IHAT to generate cases against service personnel at an industrial level. The MoD cannot claim that it has been a victim of the industry; nor can it claim that it had no way of foreseeing the creation of this industry."
The Government said it had not been able to shut down IHAT sooner because the conduct of the investigations is under scrutiny by the High Court and the International Criminal Court.
Sir Michael said: "It was the MoD that supplied the main evidence that got Phil Shiner struck off for making false allegations against our Armed Forces. Exposing his dishonesty means many more claims he made can now be thrown out and the beginning of the end for IHAT.
"This will be a relief for our soldiers who have had allegations hanging over them for too long. Now we are taking action to stop such abuse of our legal system from happening again."
MPs were told that the war veterans had been "hung out to dry", with one becoming a recluse, because there had been a lack of military support.
"While the cost to the taxpayer is significant, the psychological and actual cost to individual soldiers is arguably greater," the report states.
"Their lives have been put on hold and their careers damaged, sometimes for years, because of allegations made against them - in many cases without any credible supporting evidence. The effects of this on the British military are profound and enduring."
The Defence subcommittee inquiry, chaired by former army captain Johnny Mercer, said Iraq veterans had been treated in an "unacceptable manner as a result of serving the United Kingdom".
"Throughout this process there has been an almost total disregard of the welfare of soldiers and their families," the Conservative MP said.
"We need to hold our people in the highest esteem and a repeat of IHAT must never be allowed to happen again.
"The MoD must take responsibility for allowing this to happen. They could have discriminated between credible and non-credible cases yet they lacked the will to do so."
Chief of the General Staff General Sir Nicholas Carter said: "The army's leadership code requires the highest values and standards. It is right therefore that on the occasions that there are credible allegations of unacceptable behaviour they should be investigated.
"However, a significant number of claims made against our soldiers have not been credible. The recent exposure of unscrupulous law firms and vexatious claims has clearly shown this to be the case.
"Mutual trust is at the heart of the army leadership code as is the care of soldiers and their families. We therefore welcome the Government's commitment to ensuring we have the nation's confidence and the tools to do our jobs effectively on operations, free from the burden of unjust litigation."
The report by MPs said exploitation by law firms saw the caseload hit more than 3,500, despite many having no credible evidence, and pointed out that no prosecutions have been secured.
A Leigh Day spokesman said: "We would like to thank the committee for giving us the opportunity to provide evidence to this inquiry and we welcome its assertion that the UK's military must be equally subject to the law as any civilian, whether in barracks or on operations. As the report makes clear, we have referred 15 cases to IHAT.
"We will continue to represent individuals including service personnel and citizens in this country and overseas against this Government. The cases we are taking in relation to alleged abuses against Iraqi citizens are brought solely against the MoD and not individual soldiers.
"We will continue to defend ourselves fully and vigorously against the allegations made against the firm by the SRA (Solicitors Regulation Authority) when we go before the Solicitors Disciplinary Tribunal later this year. The allegations being brought against us are separate to those brought against Public Interest Lawyers."
Defence Committee member Johnny Mercer told BBC Radio Four's PM programme: "This process has caused real damage.
"It has affected the way UK military is seen, particularly in Iraq, and the individual effects on the men and women who have been put through these are horrific. Families torn apart, careers ended, and for what?
"I think it should have been shut down a long time ago. I think the MoD has been extremely slow off the mark with this. I think there is a lot for questions to answer around how this was allowed to go on for so long.
"A good period of inflection amongst key decision makers would be a good start, and then we will take it from there."