Almost 8% of Iraqi children younger than five suffer from chronic diarrhoea and protein deficiency, the agency's latest reports said.
"This means that hundreds of thousands of children are today suffering the severe effects of diarrhoea and nutrient deficiencies," Unicef executive director Carol Bellamy said.
Diarrhoea, caused mainly by unsafe water and in some areas lack of clean supplies, is responsible for 70% of child deaths in Iraq, the agency said.
Water-treatment plants, already in poor condition, have suffered more damage since the invasion. In Baghdad, 40% of the water system has been damaged, with water lines either broken or contaminated.
Sewage-treatment plants no longer work because of problems with the electrical supply, poor maintenance and damage caused since the invasion.
Iraq's interim health minister flatly denied the Unicef report.
"Acute malnutrition has certainly not doubled in this period," Ala al-Din al-Alwan said in a statement, adding that other studies showed malnutrition may even have decreased since the 2003 US-led invasion to oust Saddam Hussein from power.
The minister said that a study immediately after the March 2003 invasion put malnutrition at around 8%, while a World Food Survey report based on December 2003 data showed a rate of 4.4%.
The minister said the methodology of the Unicef report "raises serious questions and concerns".