The FT reports that government funding for the armed forces already in Iraq is set to run out at around the start of next year.

The estimate, which defence secretary Geoff Hoon is said to have accepted, means that the chancellor will have to find more than the £3.8 billion he has already set aside on top of providing resources for any additional troops.

The Ministry of Defence is already battling with the Treasury over a settlement in the upcoming comprehensive spending review.

Meanwhile, ministers were embarrassed yesterday by a leaked Foreign Office document outlining UK concerns over "heavy handed US military tactics in Falluja and Najaf".

Conservative leader Michael Howard also defended his decision to break ranks with the government over Iraq, saying the coalition had lost the moral high ground in the country.