Some US commanders believe funds available for relief and reconstruction during the country's war in Iraq may have ended up benefiting insurgents, a report released by a US watchdog said.

The US Special Inspector General for Iraq Reconstruction (SIGIR) surveyed officers and officials associated with the Commander's Emergency Response Programme (CERP), a fund used by US military officers for projects to boost rebuilding in their areas of responsibility.

The US Congress has allocated nearly $4 billion since 2004 for CERP.

"Some commanders indicated that the diversion of CERP project funds may have benefited insurgents," SIGIR said in the report published on Monday detailing the results of the survey.

"Money... was found during raids on insurgents (along with) admission from contractors that they paid money 'for protection,'" the report quoted one US commander as saying.

"There was substantial evidence that the local authorities ... were stealing right off the top," another said. "Additionally, governors were offering insurgents money that was to pay for CERP activities to NOT attack certain CERP-funded programmes."

The number of US forces in Iraq peaked at nearly 170,000 several years after the 2003 US-led invasion, but the vast majority pulled out at the end of last year. Now, around 150 remain under the authority of the US embassy.

SIGIR found that graft also posed a problem for the dispersal of CERP funds.

"Corruption is an integral feature of Iraqi society and politics. Battling corruption in the Iraqi system is a Sisyphean task... It was generally understood and accepted as common practice," one commander said.

"When you pay $40,000 to a contractor to have a well dug and 10 percent goes to the contractor, and 10 percent more goes to the local tribal leader, we call that corruption. But that was the cost of getting things done," another said.

"I never saw US personnel commit fraud, but in Iraqi culture there were many hidden costs."

Another officer said: "I believe that contractors that were used for certain projects were required to pay off Iraqi officials. Incidents occurred when these contractors did not pay off officials, such as threats and attacks.

"Additionally, some Iraqi officials, political and military, attempted to force us to use certain contractors. The assumption was that these contractors were providing kickbacks to the Iraqi officials."

The report noted: "About 76 percent of those surveyed estimated that at least some of the money their battalions spent on CERP was lost to fraud and corruption."