Threat of terrorist state real: Abbott

Prime Minister Tony Abbott has warned of the possibility of a "terrorist state" if Islamic extremists make further gains in Iraq.

Mr Abbott says the violence in the country's north is already a humanitarian disaster for civilians, and is fast becoming a major international security crisis.

"Should the control of this group be consolidated we are faced with a situation of a terrorist state," Mr Abbott told parliament on Monday.

The insurgents have used maximum violence and terror towards civilians and "extraordinary brutality toward surrendering Iraqi soldiers and policemen", he added.

"Not only is it a humanitarian disaster for the people in those sections of Iraq, it is a security disaster for the Middle East and also for the wider world."