Service director General Muhammad Abd Allah Shahwani told journalists on Monday that his assessment included 40,000 fulltime fighters and about 200,000 Iraqis involved part-time.
He added that part-timers were also likely to be providing everything from intelligence to logistics and shelter.
"I think the resistance is bigger than the US military in Iraq. I think the resistance is more than 200,000 people," he added.
The numbers far exceed any figure presented by the US military in Iraq, which has struggled to control the country since ousting the former government in April 2003.
Past US military assessments on fighter numbers have been increased from 5000 to 20,000 full and part-time members in the past half year, most recently in October.
Shahwani said "the resistance" enjoys wide backing in the provinces of Baghdad, Babil, Salah al-Din, Diyala, Nineveh and Tamim.
Shahwani questioned the value
of destroying Falluja
He said fighters have gained strength through Iraq's tight-knit tribal bonds and links to the old 400,000-strong Iraqi army, dissolved by the US occupation in May 2003 two months after the US-led invasion.
"People are fed up after two years without improvement. People are fed up with no security, no electricity, people feel they have to do something," he said.
"The army was hundreds of thousands. You would expect some veterans would join with their relatives, each one has sons and brothers."
The intelligence chief added that some city neighbourhoods and small towns around central Iraq had become virtual no-go zones despite US military efforts in Samarra and Falluja.
He also named areas in Baghdad itself where various groups had become virtually untouchable.
And in stark contrast to many US assessments of success in Falluja, the spy chief said the November campaign against the town was far from a military triumph.
"What we have now is an empty city almost destroyed and most of the insurgents are free. They have gone either to Mosul or to Baghdad or other areas."
Shahwani stopped short of saying that anti-US fighters were now taking control of the situation in Iraq, but warned: "I would say they aren't losing."
US analyst comments
Defence experts have broadly accepted the new assessment as valid.
Bruce Hoffman, who served as an adviser to the US occupation in Iraq and now works for US-based thinktank Rand Corporation, said he believed the estimate, though it said it was impossible to know for sure.
And Anthony Cordesman, an Iraq analyst with the Washington-based Centre for Strategic and International Studies, put Shahwani's estimates on an equal footing with the American's.
"The Iraqi figures do recognise the reality that the insurgency in Iraq has broad support in Sunni areas while the US figures down play this to the point of denial."