He also fears that rogue elements could acquire a North Korean nuclear device and target a US city.
Perry, a greatly respected Democrat, revealed his fears and grim predictions in an article on Tuesday in the Washington Post.
"I think we are losing control" of the situation, said Perry. "The nuclear program now underway in North Korea poses an imminent danger of nuclear weapons being detonated in American cities."
Perry, who served as President Bill Clinton’s defense secretary, said he came to the conclusion after extensive conversations with senior Bush administration officials, South Korean President Roh Moo-hyun and senior officials in China.
Perry had sharp words for the current US administration’s handling of the North Korean nuclear crisis, saying their policy was in “disarray.”
"I'm damned if I can figure out what the policy is," he added.
As for the diplomatic approach Perry believes it is leading nowhere.
Washington has insisted on multilateral talks involving China, Japan and South Korea, while Pyongyang demands bilateral talks with the United States before any multilateral discussions.
"The diplomatic track, as nearly as I can discern, is inconsequential," he said.
Multi or Bi
Silent treatment: Bush will
not talk to Kim Jong Il
Perry’s comments come as China attempted on Tuesday to break the impasse over the talks’ format.
Beijing supports a multilateral framework for negotiations that would allow for bilateral meetings on the sidelines, a Chinese Foreign Ministry official told a briefing for Western diplomats.
"Multilateral first, bilateral contacts subsequently and even in a separate room," one diplomat who attended the briefing told Reuters.
Perry believes the problem lies in the fact that US President George W Bush refuses to enter into genuine talks with Pyongyang's Stalinist government.
"My theory is the reason we don't have a policy on this, and we aren't negotiating, is the president himself," Perry said. "I think he has come to the conclusion that Kim Jong Il is evil and loathsome and it is immoral to negotiate with him."
The immediate cause of concern, Perry said, is that North Korea appears to have begun reprocessing the spent fuel rods, according to a South Korean intelligence report last week.
"I have thought for some months that if the North Koreans moved toward processing, then we are on a path toward war," he said.
The Washington Post said that there was an increasing consensus among other specialists that the administration, distracted by Iraq, had allowed the North Korean crisis to spiral out of control.
Since the crisis over North Korea's nuclear programme erupted last October, when Pyongyang disclosed it had a programme to enrich uranium, the Bush administration has sought to pressure the regime into abandoning its nuclear ambitions without offering inducements or entering into negotiations.
Administration officials -- who came into office highly skeptical of the Clinton's 1994 deal that froze North Korea's nuclear programmes -- have sought to enlist Japan, South Korea and China to join in isolating North Korea.