"UNHCR officials who just returned from the region warned that we are now facing an even larger humanitarian crisis than we had initially prepared for in 2002 to 2003," said Ron Redmond, a spokesman for the office of the UN High Commissioner for Refugees.

Redmond told reporters the agency briefed representatives of donor governments at a meeting in Geneva on Thursday about the impact of the violence and a massive wave of displacement involving hundreds of thousands of people.

"The longer it goes on, the more difficult it gets," he said, warning that the problem was now "practically beyond" the capacity of relief agencies to deal with.

The UNHCR called for "a renewed focus" on the humanitarian crisis, warning that billions of dollars in international funding provided for Iraq's recovery development could not be spent because of security concerns.

By contrast, humanitarian funding was neglected, Redmond said, partly because of the international community's mistaken assumption that the situation in Iraq would stabilise after the fall of Saddam Hussein.

"UNHCR said it was increasingly alarmed over the incessant violence in Iraq and distressed over the lack of an international humanitarian response to deal with the massive numbers of people who are being displaced," he added.

At least 1.6 million Iraqis are displaced internally, including 425,000 who fled their homes this year largely due to sectarian violence, the UNHCR said Friday.

Another 1.8 million Iraqis have sought refuge outside the country, including many who had fled before 2003.

The refugee agency said in October that some 40,000 Iraqis are now arriving in Syria alone each month.

There are now 600,000 Iraqi refugees in Syria, 700,000 in Jordan, at least 100,000 in Egypt, 54,000 in Iran and up to 40,000 in Lebanon, it added.

Three years ago planning had focused on an estimated total of 600,000 displaced and assisting returns, not an exodus.

Now the agency is" sorely lacking" in funding to deal with the humanitarian situation inside and outside the country, Redmond said.

"Much of our work since the fall of the previous regime was based on the assumption that the domestic situation would stabilise and hundreds of thousands of previously displaced Iraqis would be able to go home," Redmond said.

"Now, however, we're seeing more and more displacement linked to the continuing violence," he added.

The agency prepared a budget of 154 million dollars in 2002 to deal with an expected 600,000 refugees. It now has funding of just 29 million dollars for Iraq and has received less than two-thirds of the latter sum to deal with five times more people.

"We have already begun to suspend a number of crucial activities, to the extent that some of our staff in the region are volunteering to forego their salaries for the next two months just to keep these projects going," said Redmond.