U.N. special rapporteur Ben Emmerson cited the alleged abuse in comments after a recent visit to Chile, including southern areas inhabited by the country's Mapuche communities.
"The anti-terrorist legislation has been used in a way that discriminates against the Mapuche," Emmerson, a British international lawyer, told the Santiago Times.
"It has been applied in a confusing and arbitrary way, which has turned into a real injustice that has impaired the right to a fair trial. And it has been perceived as stigmatizing and delegitimizing of the Mapuche territorial demands and protests," Emmerson said.
Violence during Mapuche protests escalated in 2012 with a string of arson attacks, including one that killed an elderly couple. The deaths shocked Chileans and raised questions about Pinera's handling of the dispute and "tough dictatorship-era measures" to curb violence, the newspaper said.
Emmerson is the U.N.'s Special Rapporteur on Counter Terrorism and Human Rights and reports annually to the U.N. General Assembly, the U.N. Human Rights Council and other entities established by the Security Council. He also conducts country visits and provides technical and other advice to U.N. member states.
Emmerson said Chilean prosecutors have enough legislation at their disposal to investigate and punish crimes without the need to use terrorism legislation from Gen. Augusto Pinochet's 1973-90 dictatorship.
He warned a volatile situation in southern Chile's Araucania and Bio Bio regions could turn into a major regional conflict.
Advocacy groups cited instances of police brutality including raids on Mapuche homes and use of rubber bullets on women and children.
So far there hasn't been a government response to Emmerson's comments and his call for a government strategy to defuse the crisis and speed up return of ancestral lands to Mapuche, Chile's largest indigenous minority.
Critics say successive governments' economic development programs have passed by the Mapuche and led to increasing radicalization of groups in the community.
A radical Mapuche group occupied and burned farms and lumber trucks during protests last year. Werner Luchsinger, 75, and wife, Vivian Mackay, 69, were killed when attackers torched their home in the indigenous area. The incident is yet to be fully investigated.
U.N. agencies called for a regular dialogue, which has yet to materialize. Emmerson said both the Carabineros uniformed police force and prosecutors failed to perform their roles. "Certain local public prosecutors have adopted an unacceptable stance of institutional indifference to the commission of these crimes," he said.