US officials in Baghdad fear a new outbreak of "ethnic cleansing" between Sunnis and Shi'ites next year after the US security crackdown ends, a government watchdog said.

The Special Inspector General for Iraq Reconstruction warned in a report that lower levels of sectarian violence attributed to the President George W Bush's troop build-up have not produced lasting political reconciliation in Baghdad and its neighboring Diyala province.

"Some of (the) districts and neighborhoods remain too 'hot' for reconciliation to take place," said the report, which included a review of a US initiative to stabilize Iraq with provincial reconstruction teams consisting of US civilian and military officials.

"In areas that included mixed Sunni-Shia populations, we were told, the departure of US forces would produce open battlegrounds of ethnic cleansing," the report said.

There has been no end to the relentless violence in Iraq, but attacks in Baghdad and surrounding areas have fallen off since Bush sent an extra 30,000 troops as part of a strategy to stabilize the Iraqi capital in hopes of fostering political reconciliation. There are currently 171,000 US troops in the country.

But analysts say the fractured Iraqi government has not addressed underlying grievances between Sunnis and Shi'ites.

They warn that sectarian violence could re-escalate after the planned withdrawal of 20,000 US combat troops by next July.

Sectarian violence surged after the February 2006 bombing of a Shi'ite mosque in mainly Sunni Samarra. Analysts say one reason for the recent drop in violence is the scale of sectarian "cleansing" that has since occurred in once-mixed Sunni and Shi'ite districts.

US officials assigned to the reconstruction teams in Iraq told the inspector general that much of the potential for renewed violence lies in Baghdad neighborhoods where US forces had little presence before the troop build-up began.

They believe fighting could resume in once-mixed Sunni and Shi'ite areas, where one group has temporarily driven out its rivals, and in areas where homogenous Sunni and Shi'ite neighborhoods border each other.

The report referred to southern Baghdad's Doura market as a place where Shi'ite militias could be expected to expel Sunni shopkeepers if US forces withdrew.

"Their concern is that while the surge has helped pacify areas including Diyala and aided the PRT mission, it may only be temporary," Stuart Bowen, the special inspector general, told Reuters after a congressional hearing.

It was unclear what effect the potential for violence cited by the report might have on US troop withdrawal plans. US officials have cautioned that the pace of withdrawal will depend on the security situation on the ground in Baghdad and its environs.

The special inspector general's report characterized political reality for the average Iraqi in Baghdad's neighborhoods as "a matter of intimidation and fear."

"Sunni and Shia extremists target local government officials, religious leaders and tribal sheikhs who step forward to help on matters of reconciliation," the report said. - Reuters