Soldiers whose lives have been shattered by the trauma of fighting in Afghanistan and Iraq are being given as little as £3,000 compensation after their medical discharge.

One victim, who saw his friend’s throat ripped out by a bomb blast, said he would have been better off if he was unemployed and on benefits. Another accused ministers of washing their hands of mentally ill servicemen and women.

Since November 2005 the Ministry of Defence (MoD) has paid 155 mentally traumatised soldiers, who experience delusions, hallucinations, flashbacks and severe depression, an average of just under £6,000, according to official figures. Four others received payments above £9,075.

Sir John Major, the former prime minister, is so concerned by the low payouts that he has written to Gordon Brown to object in what aides describe as “the strongest possible terms”.

Charities, senior military and legal figures last week demanded changes to the compensation system in submissions to a government review.

The review was launched in August after disclosures by The Sunday Times that Bob Ainsworth, the defence secretary, was trying to cut compensation payouts through the courts.

Brigadier Ed Butler, former commander of British forces in Afghanistan, said: “We have got one hell of a problem brewing up. Post traumatic stress disorder [PTSD] needs to be fully recognised and adequately compensated. When you’re talking about £3,000 for someone who has got PTSD it’s not enough.”

In the past two years 4,916 cases of mental disorder have been identified in British troops who toured Afghanistan and Iraq, while 67 who served in the two war zones have committed suicide since 2003.

The true toll of mental illness is likely to be far higher. In the United States, commanders have stated that 30% of all troops deployed suffer from some form of PTSD.

Captain Neil Christie, a Royal Marine, developed PTSD after being posted to Afghanistan in 2006. In one instance he was asked to identify a friend who had been killed by friendly fire. He said: “His face was all gnarled, his back had been ripped apart and mutilated . He was just a distorted carcass.”

A convoy of his comrades were hit by a suicide bomber and Christie said: “One of my friends had his throat ripped out. We had to wash the blood from their vehicles and equipment afterwards.”

His abiding memory was of Afghan children treated at Camp Bastion after sustaining injuries by walking into mines: “I can never forget their faces, some of them were as young as five or six who had lost limbs. ”

On his return home in 2007 he struggled to adjust and was diagnosed with PTSD in January 2008. He received a £5,000 lump sum, £180 a month and no other benefits. If he was unemployed he would get £260 a month in income support.

Christie, 28, said: “I was disgusted, I felt like the army had washed their hands of me, they just didn’t care. I’d have been better off being unemployed. I would be out on a walk down in Devon by the sea cliffs and think about just jumping off.

“I had been to hell and couldn’t process all the mental and emotional shit that went with that.” Christie received intensive counselling from Talking2minds, a charity for traumatised soldiers. He now works for it as a counsellor.

Sean Chance, 21, was diagnosed with PTSD after serving as a trooper with the Queen’s Royal Hussars in Iraq. He lost half his left foot when a rocket pierced the armour of his Challenger 2 tank. He received just £6,000 for his post-traumatic stress, which was increased on appeal to £11,000. He now earns £90 a week mowing lawns.

He said: “We were under constant attack, you couldn’t sleep for the mortar bombing. These people hated us. I remember once standing next to a sergeant and he was shot in the chin. His face was this red, lumpy mess.

“The compensation was a massive insult. I feel like they have just paid me off and abandoned me. I can’t sleep, I feel depressed and angry.

“The MoD sent me to a counsellor who just wanted me to relive the trauma, which is the last thing I want to be doing. It did nothing for me.”

Peter Doolan, 28, was diagnosed with PTSD in 1999, after serving in Kosovo. Despite his illness he went on to serve in Sierra Leone and Northern Ireland and did two tours of Iraq.

Doolan, a father of three, was medically discharged in 2007. Under the old war pensions compensation system he receives just £60 a week. “I saw horrific stuff in Kosovo. We arrived in villages where everyone was dead. We had to dig bloody graves,” he said.

“In Iraq it was full throttle. Every time we went out we were attacked. Out of my company we lost six. I got to a point in Iraq where my battle partner was shot through the throat [and] I didn’t give a shit.”

Doolan has struggled to adapt to civilian life in Dereham, Norfolk. He sleeps alone in his son’s bed because he fears he will hit out at his wife in his sleep. He has suffered severe depression and also become prone to violence.

“If I get nervous or upset I can’t control the shaking. I will physically start throwing up. When I have nightmares, even though I know it’s a dream, I can’t wake myself up. I start kicking out and screaming.

“I have hallucinations. I see people, animals, mostly cats. I’ve even seen flowers grow out of my carpet. I’ve not been to a pub in 11 months. The last time, in January, at my granny’s funeral, I beat up three of my brothers.”

Doolan is furious with the level of compensation for PTSD: “They have no bloody idea what it’s like for us. I think they must hate soldiers.”

David Hill, chief of Combat Stress, the charity, said: “These are hidden wounds and the compensation scheme discriminates quite unjustly against people suffering from mental disorders.”

The MoD said veterans requiring mental health care receive “excellent support” from the National Health Service. Ainsworth pledged that the review into the compensation system would be “thorough and wide-ranging”.

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