Surrey Police received allegations that the News of the World had hacked Milly Dowler's phone back in 2002 but chose to take no action, according to a police watchdog.

The Independent Police Complaints Commission (IPCC) has accused senior officers at Surrey Police of being "afflicted by a form of collective amnesia" for failing to investigate whether the murdered 13-year-old's phone had been hacked despite knowledge "at all levels" of the allegations.

The report follows an investigation into the conduct of two senior officers, dep chief const Craig Denholm and temporary det supt Maria Woodall, and their alleged knowledge of the hacking.

The report said neither were guilty of misconduct, but Surrey police has said they have taken management action and issued "words of advice" to the pair.

The revelations of hacking led to the closure of the News International-owned newspaper and the launch of Operation Weeting in 2011.

The report states: "There is no doubt, from our investigation and the evidence gathered by Operation Baronet, that Surrey Police knew in 2002 of the allegation that Milly Dowler's phone had been hacked by the News of the World.

"It is apparent from the evidence that there was knowledge of this at all levels within the investigation team.

"There is equally no doubt that Surrey Police did nothing to investigate it; nobody was arrested or charged in relation to the alleged interception of those messages either in 2002 or subsequently, until the Operation Weeting arrests in 2011."

Afflicted by a form of collective amnesia

IPCC deputy chair Deborah Glass said: "We will never know what would have happened had Surrey Police carried out an investigation into the hacking of Milly Dowler's phone in 2002.

"Phone hacking was a crime and this should have been acted upon, if not in 2002, then later, once the News of the World's widespread use of phone hacking became a matter of public knowledge and concern.

"Our investigation has heard from officers and former officers from Surrey Police who have expressed surprise and dismay that it wasn't investigated.

"We have not been able to uncover any evidence, in documentation or witness statements, of why and by whom that decision was made: former senior officers, in particular, appear to have been afflicted by a form of collective amnesia in relation to the events of 2002. This is perhaps not surprising, given the events of 2011 and the public outcry that the hacking of Milly Dowler's phone produced.

"However, it is scarcely credible that no-one connected to the Milly Dowler investigation recognised the relevance and importance of the information Surrey Police held in 2002 before this was disclosed by Operation Weeting.

"Surrey Police has apologised to the Dowler family for their failure and they were right to do so."

The now-defunct NOTW has admitted hacking the 13-year-old schoolgirl's phone while she was still misisng. It is unclear if two of her messages were deleted by the newspaper or if they were cleared off the phone automatically

Chief const Lynne Owens said: "Surrey Police acknowledged in 2011 that the hacking of Milly Dowler's voicemails should have been investigated and both the former Chief Constable and I have met with and apologised to the Dowler family for the distress this has caused.

"As a result of the Force's internal investigation, two officers were referred to the IPCC. The IPCC has concluded that neither officer has a case to answer for misconduct.

"As the IPCC Commissioner has acknowledged, at the time Surrey Police became aware of phone hacking, the focus of the investigation team was on finding Milly Dowler and then bringing her killer to justice.

"This was the largest and most high-profile murder investigation in the country at the time and remains the largest enquiry ever undertaken by Surrey Police. It was right that Milly was the primary focus of the investigation but the matter of phone-hacking should have been revisited at a later stage."

Surrey Police made headlines last October by admitting that officers interviewed Jimmy Savile back in 2007 over historical allegations of sexual abuse, but chose to take no action.