By Mussab Al-Khairalla

BAGHDAD, Dec 4 (Reuters) - Iraq is not yet ready to cope with a mass return of refugees, the United Nations special representative in Iraq said on Tuesday, after thousands made their way home in recent weeks.

Security in Iraq has improved but is still unpredictable because of slow political progress, Steffan de Mistura told a news conference in the Iraqi capital.

"This is not a massive return and the (U.N. High Commission for Refugees) does not recommend a massive return because of the fragility of the situation," de Mistura said.

He said the refugee agency was working closely with the government to ensure resettlement of refugees went smoothly.

Some 2.3 million Iraqis are believed to be displaced within Iraq while 2.2 million have fled abroad, the largest number to Syria. The United Nations says about 1,000 more Iraqis are now returning from Syria each day than leaving for that country.

Iraq has sought to encourage citizens to return by offering families 1 million Iraqi dinars ($820) to help restart their lives. Critics say the sum is not enough, especially when families return to find their homes occupied by others.

Displacement and Migration Minister Abdul-Samad Sultan said emergency funds unused in the 2007 budget would likely be used to ease the difficulties faced by those returning.

De Mistura said the government should prepare themselves for an eventual return of larger numbers.

"There's a need for immediate action to ensure those who come back voluntarily keep their dignity," he said.

"There is a concern ... that in the short-term you will get a feeling of happiness but in the medium term you will face security and humanitarian problems."

The UNHCR will provide $11.4 million to assist 30,000 of the hardest-hit refugees. (Writing by Mussab Al-Khairalla, editing by Robert Woodward)

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