Iran has effectively created a Shi'ite "state within a state" in Iraq providing both logistical support of armed groups and funds for social programs, The Washington Times reported on Monday citing a security report commissioned by the Saudi government.

The 40-page report says Iranian military forces are providing Shi'ite militias with weapons and training and that Tehran is actively supporting pro-Iranian Iraqi politicians, the newspaper said.

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"Where the Americans have failed, the Iranians have stepped in," it said, quoting the report.

The findings were submitted to the Saudi government in March but have not been publicly distributed, The Washington Times said.

The report described the Badr organization, the armed wing of the biggest party in Iraq's government SCIRI, as the "key vehicle Iran is using to achieve its military security and intelligence aims," the newspaper said.

In details on the Sunni insurgency, the report cites Iraqi tribal leaders as saying that it is run mainly by former commanders and high level-military officers of the dismantled Iraqi Ba'athist government.

The assessment concludes that, given historical ties, "Saudi Arabia has a special responsibility to ensure the continue welfare and security of Sunnis in Iraq," the Times reported.

It recommends that the Saudi government prepare a strategy to deal with the worst-case scenario of full-blown civil war and to share the report with the United States, the article said.

The study was compiled by the Saudi National Security Assessment Project, a group commissioned to provide security and intelligence assessments to the Saudi government, the newspaper said.

The article said the report was directed by Nawaf Obaid, who recently was fired after writing an opinion piece in The Washington Post that suggested the Saudi kingdom would back Iraq's Muslim Sunnis in the event of a wider sectarian conflict.