Healing the Wounds in Porthcawl has been asked to stop using Neuro Linguistic Programming (NLP), which tries to change people's patterns of mental and emotional behaviour.
It is not regulated or approved and can make patients worse.
The charity said it is gathering data to prove its treatment is effective.
But two veterans interviewed for the BBC's Week In Week Out programme claim it was the therapy they received at Healing the Wounds that made them feel suicidal.
Both men, one of whom went undercover for the programme, said they felt worse after their treatment.
Dr Neil Kitchiner, head of the NHS All Wales Veterans Health and Wellbeing service, said he has not seen evidence of the treatment working.
"None of them are cured as far as I've seen, after three days treatment," he said.
"Some have been made very unwell as a result of going there and have needed a lot of support from NHS and veterans' charities.
"We have asked them to stop it.
"We have shown the evidence from the NHS and from the NICE (National Institute for Health and Care Excellence) guidelines, we've shared our concerns with them and yet they continue to operate in the way they do."
Healing The Wounds was set up by Bridgend couple Kevin and Carol Richards and has raised almost £500,000 in the last three years.
They insist it is offering a safe and effective alternative therapy for veterans.
But on the programme some describe feeling even worse after a three-day residential course during which veterans are sent to a hotel overnight.
One veteran, who did not want to be identified, said the course of therapy left him feeling suicidal.
"I did two full days and on the third I left and my wife came to collect me," he said. "When she came through the doors it was such a relief, I was left feeling worse than when I first went into Healing The Wounds."
The undercover veteran, who does not have post-traumatic stress disorder (PTSD) but described suffering some of the  symptoms, was told by Carol Richards during therapy that it had taken her just 20 minutes to help one soldier who had seen many of his colleagues killed.
No attempt was made to contact the undercover veteran's GP to check his physical or mental health before therapy began.
Prof Neil Greenberg, co-director of the Academic Centre for Defence Mental Health at Kings College London, said: "If this group who are not medically qualified and don't know a person's whole treatment history, because they haven't got that, that could cause some real problems, it could be quite dangerous."
Healing the Wounds said it is collecting data to prove its treatment is effective, but Prof Greenberg says unless NLP is subjected to what are known as randomised clinical trials it cannot be established as an appropriate treatment for PTSD.
He added: "NLP has not been investigated by proper scientific trials to show it works.
"The key point is, just because someone feels good at end session, there is no guarantee they're going to feel good in the future.
"And given the fact we know psychological therapies have potential to harm we need to do those trails."
The programme also discovered that regulators have investigated the qualifications of a counsellor who had falsely been described as a clinical psychologist and a paramedic while helping vulnerable veterans for the charity.
John Yandle from Blaenavon claims Healing The Wounds did not check his qualifications before he began counselling people with PTSD who had turned to it for help.
The Health and Care Professions Council which polices the appropriate use of job titles including paramedic and clinical psychologist has ordered him not to use the titles in future.
Mr Yandle, who does have counselling qualifications, denied deliberately misleading people and says the charity had mistakenly referred to him as a paramedic on its website.
Darren Millar, chair of the Welsh assembly's cross-party group on the Armed Forces, is calling for better regulation of charities offering mental health services to veterans.
He said: "Because there is no regulation anybody can set up as an NLP practitioner and the quality of their work is not monitored by anybody so that puts potential risks out in the field for anybody accessing those sorts of services."
"What we need is some proper arrangements for oversight of the quality of the work being done by any charity that is giving some support to veterans.
"What is important is to measure the outcomes when any organisation is offering this sort of service to see if it is making a real difference in the lives of the people who contact it."
The Charities Commission has confirmed it is investigating Healing the Wounds and its links to The Forces Aid Foundation - set up by Kevin Richards and wrongly described as a charity on its website.
Mr Richards thanked the programme for pointing out the error and said it would amend its website.
The Welsh government said it has spent £500,000 on the All Wales Veterans Health and Well Being Service.
A spokesman added: "We are clear that where any body offers treatment for any condition, they should ensure that these are in line with evidence based guidelines.
"This is a stipulation for the NHS but an expectation for general good practice more broadly."
Week In Week Out is on BBC One Wales on Tuesday, 22 October 2013 at 22:35 BST
Armed forces veterans struggling with mental health issues are being put at risk from a therapy used by a Welsh charity, a BBC investigation has found.