Iraq needs $1.56 billion this year to finance its emergency response to the humanitarian crisis caused by the war against Islamic State, according to a government report released on Sunday.

Baghdad, strapped for cash amid a plunge in oil prices and higher military expenditure associated with the fight against the Sunni jihadist group, will manage to fund less than 43 percent of those needs from its budget, the report said.

"The international community is necessary for bridging the deficit or financing gap," it added.

The conflict has displaced more than 3.3 million people since 2014. The Iraqi government allocated around $850 million last year for efforts to shelter such families and help them return to recaptured areas, but it ended up funding less than 60 percent of that, the report showed.

Islamic State seized about a third of Iraq's territory in the north and west in 2014, but has slowly been pushed back by Iraqi forces, Iranian-backed Shi'ite militias and Kurdish peshmerga fighters - backed by US-led coalition air strikes.

Most of the displaced people, living in makeshift camps, disused buildings and homes in Baghdad, the northern Kurdistan region and other areas, are from Iraq's Sunni minority.