Former corporal Donald Payne told the public inquiry into Mr Mousa's death that he witnessed Lieutenant Craig Rodgers punching or kicking a group of detainees and even pretending to set one of them alight.
Payne also claimed Lieutenant Colonel Jorge Mendonca, commanding officer of the former 1st Battalion Queen's Lancashire Regiment (1QLR) in Iraq in 2003, was "gung ho" and "trigger happy".
Mr Mousa, 26, died in Basra, southern Iraq, on 15 September 2003 while in the custody of the 1QLR, having suffered 93 separate injuries.
Payne became the first member of the UK armed forces to be convicted of a war crime when he pleaded guilty at a court martial to inhumanely treating civilians.
Giving evidence to the inquiry today, he dramatically changed his account to admit for the first time that he used "gratuitous violence" against the detainees and witnessed other soldiers copying him.
But he was accused of lying about the involvement of other members of 1QLR.
Payne told the inquiry he had until now covered up the extent of the abuse of Mr Mousa and other Iraqis arrested with him out of "misguided loyalty".
He claimed he saw every member of the unit commanded by Lt Rodgers, known by the call sign G10A, beating the prisoners.
The disgraced non-commissioned officer said in a statement: "I now disclose that in adopting the routine I did each time I returned to the temporary detention facility to ensure the detainees were awake, the degree of force I applied was greater than I have so far admitted.
"Moreover at one time or another I saw all the members of the multiple in call sign G10A emulate me.
"I have seen each one, including Lt Rodgers, forcefully kick and/or punch the detainees in the period between September 14 and 16 2003.
"Further, during the morning of Monday September 15, I observed Lieutenant Rodgers place a jerry can of petrol in front of the young boy. He poured water over him and then lit a match."
Mr Rodgers, who left the Army in March 2007 having reached the rank of captain, strongly denied allegations of prisoner abuse when he gave evidence to the inquiry last week.
He said in a witness statement: "I did not hit, punch, kick or physically assault any of the detainees at any time."
Payne admitted that he lied in interviews, to the court martial and in his first statement to the public inquiry for reasons of "self-preservation".
He previously claimed he only nudged or slapped the Iraqi detainees and never saw them being beaten by their guards.
Gerard Elias QC, counsel to the inquiry, asked him: "What you are now saying ... is that the force was greater than that and in fact amounted to what we might call an element of gratuitous violence?"
Payne replied: "Yes."
The former soldier suggested that he abused the detainees because he believed - wrongly - that they were linked to the deaths of three members of the Royal Military Police (RMP) in Iraq in August 2003.
Payne told the inquiry of one occasion where Lt Col Mendonca cocked his pistol, held it above a prisoner's mouth and threatened to "blow his face off".
He said he believed this sent him the message that he should be "firm and aggressive" with detainees.
The 1QLR commanding officer also personally shot out blacked-out car windows after a directive was issued banning them, he claimed.
Payne said in a statement to the inquiry: "It was my impression that the CO (commanding officer) was somewhat trigger happy.
"He would pull his pistol out at any opportunity. He would behave as if he were a member of the SAS."
Lt Col Mendonca, who was later promoted to colonel before leaving the Army in 2007, was charged with negligently performing a duty but was cleared at the court martial.
His counsel, Tim Langdale QC, accused Payne of telling lies about his client.
The public inquiry in central London has been told that British soldiers in Iraq used "conditioning" methods - such as hooding, sleep deprivation and making suspects stand in painful stress positions - banned by the Government in 1972.
It was played a short video showing Payne screaming obscenities at Mr Mousa and other hooded Iraqi prisoners and calling them "apes".
The inquiry has also heard that the former non-commissioned officer subjected the Iraqi detainees to other abuse, including making them scream in an "orchestrated choir".
Payne claimed that he never used the word "choir" and it was just him prodding the detainees as part of one of his checks.
The ex-soldier also played down the video of him screaming at the detainees.
He said it did not show him applying "any great force" or shouting "any more than I would be used to shouting and have in the past shouted at soldier prisoners".
Asked by his lawyer whether there was anything he wanted to say to the detainees, Payne said: "I would just like to apologise for my appalling behaviour."
Payne, who was cleared of charges of manslaughter and perverting the course of justice, was dismissed from the Army and sentenced to one year in a civilian jail after pleading guilty to inhumane treatment in September 2006.
Six other soldiers who faced the court martial were cleared on all counts in March 2007.
The Ministry of Defence agreed in July last year to pay £2.83 million in compensation to the families of Mr Mousa and nine other Iraqi men mistreated by British troops.
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