"Public schools have been left to fall apart and health care facilities lack even the most basic of amenities," Human Rights Watch said in a report.

Violence has risen dramatically in the area where militants are demanding a greater local share of the oil wealth.

The US-based group said the unrest was due to a failure to deal with graft.

Nigeria's is Africa's biggest oil-producer, but much of the population live on less than $1 a day.

'Extravagance'

The report used case studies from the country's top oil-producing state, Rivers, to show how millions of petrodollars have either been misused or stolen by public officials in Africa's biggest oil producer.

Much of this windfall has been lost to the extravagance, waste and corruption that characterise state government spending Human Rights Watch Delta artists Delta's troubled waters

"One local government chairman habitually deposited his government's money into his own private bank account. Another has siphoned off money by allocating it towards a 'football academy' that has not built," the report said.

HRW says Rivers state is just an example of what is happening across Nigeria.

Rivers, in the volatile Niger Delta region, accounts for most of Nigeria's oil production.

As an oil-producing state, Rivers receives an extra share of oil revenues which have surged thanks to high oil prices.

In 2006 alone, the Rivers state government's budget was $1.3bn, larger than the budgets of many countries in West Africa.

"But that windfall has not translated into efforts by local governments to bolster basic education and health care systems," the report says, listing schools without chalk, desks and books and clinics without medicines and beds.

Missed opportunity

Since the end of military rule, there has been a huge increase in funding to state and local government, particularly to the oil-producing states in the Niger Delta which receive 13% of revenues from oil produced in their state.

Some militants are demanding a greater share of oil wealth

Increasing poverty and years of neglect have fuelled violence in the region with armed militant groups emerging to demand greater control of the oil being extracted from their land.

HRW said the Nigerian government had missed a unique opportunity from high oil revenues to address the deprivation at the root of the violence.

Local government chairmen use inflated contracts to generate kickbacks for themselves and contractors as well as unclear budgets to allocate hefty slices of revenue to themselves, the report says.

"Much of this windfall has been lost to the extravagance, waste and corruption that characterise state government spending," the report says.