William Patey reportedly told British government ministers in a confidential memo that Iraq was likely to break-up along ethnic lines because of the continuation of sectarian violence.

The ambassador made the assessment in his final telegram -- which the BBC said it had seen -- before leaving the Iraqi capital last week.

It was addressed to Prime Minister Tony Blair and senior ministers, including the foreign and defence secretaries plus military top brass, it added.

Patey wrote: "The prospect of a low intensity civil war and a de facto division of Iraq is probably more likely at this stage than a successful and substantial transition to a stable democracy."

He went on: "Even the lowered expectation of (US) President (George W.) Bush for Iraq -- a government that can sustain itself, defend itself and govern itself and is an ally in the war on terror -- must remain in doubt."

The British government has been optimistic about Iraq's future but Patey's memo appears at odds with the official line.

Meanwhile, ten people were killed and 20 wounded when a bomb tore through a downtown Baghdad marketplace on Thursday, said an official from the defence ministry.

The powerful blast hit Shorjah market in an area selling electrical appliances, sending a dirty plume of yellow dust up over the city skyline.