The minister said he did not believe the country was engulfed in full-scale civil war but the trend was moving in that direction.
The comments to journalists marked the second time in two days Saud spoke publicly of his alarm over developments in Iraq and appeared to reflect a growing disagreement between the kingdom and the Bush administration.
"Iraq is a very dangerous situation and a very threatening situation," he said.
"The impression is gradually going toward disintegration. There seems to be no dynamic now that is pulling the country together. All the dynamics there are pushing the (Iraqi) people away from each other," he said.
Saudi Arabia fears civil war may
break out in Iraq
Asked what Saudi Arabia feared most about the trend, Saud said, "It will draw the countries of the region into conflict and that is the main worry of all the neighbours of Iraq".
He referred specifically to Iran, which is backing and supplying Shia in Iraq, and to Turkey, which would not permit a separate Iraqi Kurdish state on its border.
The Iraq war and occupation have cost nearly 2000 American lives, untold thousands of Iraqi lives and over $200 billion but there has been little progress in stopping fighting that began soon after the 2003 invasion.
Saudi Arabia, a majority Sunni Muslim country, has voiced fears an Iraqi constitution, due to be put to a referendum in four weeks, could split the country apart and disenfranchise a Sunni minority that lost power after the US-led invasion.
"The impression is gradually going toward disintegration. There seems to be no dynamic now that is pulling the country together"
Saudi Arabian Foreign Minister
Saud said the Sunni-Shia division was not pronounced under ousted Iraqi President Saddam Hussein, a Sunni, but was inflamed when the post-war US occupation authority disbanded the Iraqi army and banned members of Saddam's Baathist party from jobs and leadership positions.
He said Iraqi Sunnis were only seeking jobs and guarantees of security. He urged the Shia majority who now hold much of the political power in Iraq to reach out to the Sunnis and assure they will be "equal citizens".
Saud said he did not see a purposeful US policy to divide Iraq into Sunni, Shia and Kurdish states but "this is what is going to happen if things continue as they are."
He did not urge Iraq to reject the constitution but said the key would be how the document was implemented.
Saud said the Bush administration and his government agreed Iraq should free, prosperous and united.
But he said when he raised concerns about growing political divisions, the Americans noted that many doubted the wisdom of holding elections in Iraq, which turned out well, and they
expressed confidence the constitution would also be a success.
Saud repeated concerns he made to the Council on Foreign Relations on Tuesday that Iran was increasingly interfering in neighbouring Iraq, including providing money and weapons to fellow Shia.