If the paint keeps coming off then you do have moisture in the walls that causes the peeling. If you put paneling up you may just get moisture trapped behind and mold can grow. Address the moisture issue before you go any further. Find a professional or, at the very least, paint the walls with a moisture blocking paint like DryLok. Good luck.

ive already used a drylock paint it has just given me 2 months or so n then again it started reappearing..i also used some dry bond formula available but alas!!.. not resolved
now im so fedup that i just want to hide it by any mean.

That's so frustrating! I don't have experience with this but if you live on the east coast, I've worked with the company EnviroTech for similar home issues and they've always been really great. Plus they give free inspections. It might be worth it to get an expert opinion. http://naturallythebest.com

Good luck!

Definately consult a professional about the moisture. Molds can give off toxins that can cause very significant illness...I actually am an RN and have seen some very ill people from problems such as these....Please be careful and get it checked out!! Good luck to u!

Start outside your house by checking your gutters and downspouts. Many basement moisture problems are solved by simply redoing exterior drainage. Second, are you running a dehumidifier?

I don't know what your budget is, but one of the types of spray foam insulation is also a waterproofing coating if sprayed 2 inches thick or more.

All that loose peeling surface needs to come off. You don't have a good bond between the concrete and the original paint so any additional paint is only sitting on the surface. Tap the surface with your knuckles - wherever the sound changes, the wall needs to be fixed. Solid surface has a thud, loose surface just sounds hollow.

The mold is from the moisture and moisture is a verry common basement problem. First, remove all of the paint you currently have on the wall - all of it. Check the concrete for cracks and if any, use a polyurethane repair kit, professional grade (do not use hydraulic cements and other fillers). Next, you want to use a penetrating sealer, like the Foundation Armor L3000 concrete sealer which penetrates into the concrete and chemically reacts with it to form a crystalline barrier within the pores. Unlike coatings, the L3000 works below the surface and one coat is guaranteed to last a lifetime. Because you have moisture issues, consider 2-3 coats. Once the sealer has fully crystallized you can apply a paint, or any type of wall covering, without having to worry about moisture again.

Remember, moisture comes in through cracks and through the pores of the concrete. Repairing cracks and filling in the pores are the only way to permanently stop moisture.

http://www.foundationarmor.com/concrete-sealers/
http://www.foundationarmor.com/crack-repair/

Thank u for all the valuable suggestions.. Ive checked the walls by an engineer who told me that the basement walls are not properly finished and the cement concrete are not filled properly plus the wet bricks are used here.. Seepage issue is another problem. So now ive to get check the existing drainage system of the house and there is a lot work to be done:(

Sorry about that..but I am glad u found out the issue and are addressing it!! Good luck to you!!

Listen to Jayme Hobbs, please. I lost my mother to lung issues. Her home had mold issues when she lived in it unknown to all of us. (figured this out two days before she passed away) Now she is gone and I have her home that I'm afraid to go into because there is mold and mildew everywhere. (it's been closed up for 7 years with some beautiful antiques inside). Take care of it properly so you or your loved ones don't get sick. DO NOT minimize the danger involved with your problem.

Kathy, very sorry to hear that. Have you done a Radon test in the basement? Radon is one of the leading causes of Lung Cancer and lung related problems in the U.S. If she had high levels of Radon in her basement then the first level of her home would have about 1/2 the level (which she had a radon level of 84 pci/L in your basement, it would be 42 pci/L on her first floor which is double what the EPA suggests to be dangerous. If you plan on cleaning out the mold and mildew and living in the home, make sure you pay a company to conduct a Radon test (short term tests take about 48 hours).

Here is some more information about Radon:

http://www.foundationarmor.com/radon-sealer/
http://www.foundationarmor.com/wp-content/themes/shopperpress/thumbs/Radon-Mitigation-Systems.pdf