The hospital that threw out the body of a premature baby with its dirty laundry said yesterday it would "expedite" any claim for compensation from the child's parents.

Queen Mary's Hospital in Sidcup, south-east London, went into overdrive to apologise to Patrick Kelly and Amaia Fernandez, after an internal inquiry found that the body of James, their 1lb 1oz son, had been sent to an industrial cleaning facility where it was washed at 95C before being found on a conveyor belt the next day.

Rarely can a National Health Service trust have admitted culpability so fully or apologised so unreservedly over what it described as "a tragic mistake". Among the findings of the internal inquiry passed to Mr Kelly, 36, and Ms Fernandez, 25, was that during the washing cycle their son's body was put through, it suffered multiple fractures.

Helen Moffatt, the chief executive of the Queen Mary's Sidcup NHS trust, said she was expecting a claim for compensation. "We sincerely and unreservedly apologise to the family for the distress that we have caused. We understand that this has been a harrowing time for the family and they are understandably very angry and upset. Our primary concern now is to offer them support and be as open with them as we possibly can."

James Kelly Fernandez was born on 17 November, 17 weeks premature. He lived for an hour, while he was held and photographed by his mother and father. What happened after that has left Ms Fernandez traumatised – she has returned to her family in Spain – and staff at Queen Mary's in a state of shock.

The child's body was put into refrigeration while the couple planned a funeral for 17 December. On 26 November he was moved to the hospital's mortuary and put into a refrigerated drawer. Between 26 November and 13 December, James, wrapped in a sheet, was taken out of the drawer and put on the floor, where the body became mixed with laundry intended for a basket next to the refrigerated unit.

From there, the inquiry concluded, he was scooped up with other laundry and sent to Sunlight Healthcare Services 13 miles away in Brixton.

When undertakers came to collect the body on 12 December, it could not be found. Police were alerted, but the body was discovered the next day by a worker at Sunlight who was sorting laundry on a conveyor belt. He was given counselling because of what he saw.

Mr Kelly, furious at what had happened to his son, said yesterday that he believed the incident happened when the body of a baby girl was taken out of the refrigerated drawer to be handed to the undertakers. While this happened, James was put on the floor near or on the laundry, and was simply forgotten.

"We think they actually picked up the female body and rushed or walked or took the body to the undertakers and left our son there on the floor, where obviously cloths and things were thrown in on top of him," he told GMTV.

"Amaia is traumatised. She has lost her son and she's gone to Spain – for two reasons; one, to see her family to try to get over all this, and two, to get medical attention in Spain because basically it is a lot quicker for her to be checked out there. She just feels that she had to go home, she needed to recuperate. She just lost confidence in this country.

"She has come to this country to be with me and she has put her life in their hands and they have fumbled the whole thing from the beginning to the end. The whole pregnancy has been a nightmare. There is a catalogue of events that were wrong."

Ms Moffatt said changes were made in the mortuary on the day staff realised the baby was lost, to ensure such a incident could not happen again. One staff member had been suspended but had since returned to work, she said. The trust is now making further inquiries under its "Disciplinary and Capability Policies", which might result in further action being taken against staff.

"The laundry basket within the mortuary was right next to a cabinet where the bodies of babies were kept and this combination has led to the mistake," she said. "This is totally unacceptable from our point of view. It is a one-off mistake of a type that has never been seen at Queen Mary's before. I have been to the mortuary myself on many occasions in the last month.

"Our staff there have the highest regard for the patients they care for through the mortuary. The staff there have been incredibly distressed and have been very energetic in solving the problem and making the changes to stop this kind of mistake ever happening again. The linen bag is now sited in a completely different area of the mortuary and we now have a special cabinet for the storage of babies.

"These are changes we made absolutely immediately once we heard about the mistake that was made."

Asked whether the family would receive compensation, she replied: "We would expect the family to want compensation and it is my expectation that we will be hearing from them. We will expedite that process."

Queen Mary's has not enjoyed a glowing reputation of late – it was awarded a rating of only one star from a possible three in the Department of Health's latest performance ratings – but Ms Moffatt insisted her staff were not under undue stress. "During the course of the inquiry we were not led to believe that undue pressure or a lack of resources contributed to this incident," she said.

Outside Queen Mary's maternity unit, opened in 1995, patients said the incident had shocked them, but they felt sympathy for staff as well as for James's parents.

One pregnant woman, who asked not to be named, said: "I feel sorry for them. They have always been wonderful to me at this hospital. I'm going to be induced today and I feel nervous, but not because of the staff, just because I'm about to have a baby. I have full confidence in them."

Bexley Community Health Council said it had not been alerted to any worrying clinical trends affecting the hospital, but concerns had been raised over long waiting times, something reflected in the Department of Health figures. "Our main concern is with general levels of underfunding across the borough," a spokeswoman said.

Mr Kelly was inconsolable, describing the trust's apology as too little, too late. "There are all these tragedies, all these things you see in the paper, how people have suffered at the hands of the NHS," he said.

"There is always a spin, always someone to stick up and say this should have happened or that should have happened, we have made a mistake, we are looking into it, we are going to change things."