In a report to the UN Security Council, Annan on Tuesday said the security environment in Iraq had not improved much since the US-led invasion in March 2003, and he urged the United States to rely more on the political process than on force.
"It must be recognised that the problem of insecurity can only be addressed through a political process," he said.
"This requires a commitment to stop relying solely or mainly on threats or actual use of armed force and to pursue determined and genuine efforts" to address concerns, he added.
The world body's chief said security continued "to pose a very profound challenge for the successful achievement" of voter registration and polling for Iraq's first free elections.
"In addition to severely disrupting everyday life for Iraqis, the ongoing violence could undermine confidence in the transitional political process, making it more difficult to create the conditions necessary for the holding of elections in January 2005," he added.
Many died in an attack on UN's
Baghdad office in August 2003
Annan withdrew all foreign staff from Iraq in October after two bomb attacks on UN offices in Baghdad.
Last month he sent a small, permanent team there, led by Pakistani diplomat Ashraf Jehangir Qazi, who replaced Sergio Vieira de Mello, the former UN envoy who was killed in a bombing in August 2003.
Annan said the ceiling for deployment of international political, humanitarian and security staff in Iraq was set at 35 - all based in the US-guarded international zone in Baghdad.
Any expansion would require a special force, not yet organised, to guard UN staff as well as "a qualitative improvement in the overall security environment", he said.
He restated the world body's commitment to aiding Iraq's Independent Electoral Commission, which UN officials helped to set up to organise and conduct the polls.
But he said this too would not happen unless violence subsided.
"Unless and until there is a significant improvement in the overall security situation, the [United Nations] will have to continue to work both inside and outside Iraq, as circumstances permit, with a restricted presence on the ground in Iraq," Annan said.