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An investigation into abuse by private staff at the British embassy in Baghdad was "fundamentally flawed", according to Human Rights Watch.
The London director of the group, Tom Porteous, told the House of Commons foreign affairs committee that there needed to be a "proper investigation" into the allegations, and that if found guilty those responsible should face sanction.
The initial investigation was conducted by the company, Kellogg Brown and Root, itself, rather than by the UK government.
But Porteous said the Foreign Office has responsibility for the behaviour of its contractors, and should conduct its own inquiry.
He said the investigation also had procedural shortcomings, such as the failure to interview key personnel.
He also accused KBR of allowing those under investigation free access to the complainants.
Porteous added that whilst no disciplinary measures were taken against KBR staff, those that complained were dismissed.
He said that there had since been further allegations of sexual harassment made against the same individuals, "no doubt a consequence of the impunity that stemmed from this investigation".
"Those staff who have been the victim of this abuse and those who have been dismissed need to be compensated," he said.
Kate Allen, the director of Amnesty International UK also slammed the government for its attitude towards private military contractors.
Allen said proposals to allow companies to sign codes of conduct voluntarily was "absolutely insufficient", as well as being "extraordinarily weak".
"When you understand how much of what is happening in parts of the world has been contracted out, it is untenable that they not be accountable," she said.
Dods Parliamentary Communications Ltd