The thinktank's report said that Iraq had become a valuable recruiting ground for al-Qaida, and Iraqi forces were nowhere near close to matching the insurgency.
John Chipman, IISS director, said the Iraqi security forces faced a "huge task" and the continuing ability of the insurgents to inflict mass casualties "must cast doubt on US plans to redeploy American troops and eventually reduce their numbers".
Insurgents have killed 600 Iraqis since the new government was formed. The IISS report said: "Best estimates suggest that it will take up to five years to create anything close to an effective indigenous force able to impose and guarantee order across the country."
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