In a confidential report read by the BBC news service, ambassador William Patey told Tony Blair, the UK prime minister, that US hopes of an Iraqi government that could operate independently were also "in doubt".
"The prospect of a low-intensity civil war and a de facto division of Iraq is probably more likely at this stage than a successful and substantial transition to a stable democracy," he reportedly wrote.
"Even the lowered expectation of President [George] Bush for Iraq - a government that can sustain itself, defend itself and govern itself and is an ally in the war on terror - must remain in doubt."
Patey said that the situation in Iraq was not hopeless, however he predicted that the country was likely to remain "messy and difficult" for the next five to 10 years.
Blair later said at a press conference in London that Patey's memo showed that the UK was right to "stay the course".
"That's what we're doing and, however tough it is, we will see it through. If you read the whole of the [memo] that's precisely what William is saying," he said.
Also on Thursday, General John Abizaid, head of US Central Command, said that the violence in Iraq was "probably as bad as I've seen it" and that, if not stopped, the country would collapse into civil war.
He also said that additional US and Iraqi forces would be needed to quell the chaos, particularly in the country's capital, Baghdad, and said the US could suffer more combat deaths as a result.
"I think it's possible that in the period ahead of us in Baghdad we'll take increased casualties"
General John Abizaid, head of US Central Command
"I think the most important thing ahead of us throughout the remainder of the year is ensuring that the Baghdad security situation be brought under control," he said.
"I think it's possible that in the period ahead of us in Baghdad that we'll take increased casualties."
Patey, who left the Iraqi capital, Baghdad, last week, also warned the UK prime minister that there had to be greater efforts on policing the country's militia groups, particularly the Shia Mahdi army led by Moqtada al-Sadr.
"Preventing the Jaish al-Mahdi from developing into a state within a state, as Hezbollah has done in Lebanon, will be a priority," he is said to have written.
But the former ambassador is also reported to have said that the UK should not withdraw its troops from the country, because talk of an early exit from Iraq would weaken the position of other international forces still there.
The UK currently has about 7,000 troops in Iraq, stationed mainly in the south of the country.
Patey's concerns echo the assessment of former ambassador to Iraq Sir Jeremy Greenstock, London's representative in Baghdad until 2004.
In February, he said sectarian fighting had begun to resemble ethnic cleansing in some regions and warned central authorities were being ignored as communities sought protection from armed militias.