US advocacy group Vietnam Veterans of America (VVA) joined a proposed class action lawsuit against the US army, navy and airforce on Monday.
The lawsuit, which was first filed last year by an individual veteran, says that Vietnam veterans suffered post-traumatic stress disorder (PTSD) before it was recognised.
It says their other-than-honourable discharges made them ineligible for disability compensation and other benefits.
The suit claims the military has failed to correct the wrongful discharges of thousands of veterans suffering from PTSD.
"People did not understand PTSD during the Vietnam era," said VVA president John Rowan.
"Now that we do, these service members must not be denied the recognition and benefits they long ago earned."
The US attorney's office, which is representing the military in the lawsuit, said it's reviewing the matter and will respond in court.
A Department of Defence spokeswoman claimed that the agency is committed to addressing concerns related to PTSD and has taken numerous steps.
The initial lawsuit was filed by Vietnam veteran John Shepherd, who says he was diagnosed with PTSD in 2004 but has been repeatedly denied a discharge upgrade.
Mr Shepherd and the VVA, which has about 65,000 members, are represented by Yale law students who work at a veterans legal services clinic.
The students say that since 2003 the army has approved fewer than 2 per cent of applications by Vietnam veterans claiming PTSD to upgrade discharges, compared to 46 per cent for all applications.
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