(Adds comment by Pentagon, Lantos, other details)

By Susan Cornwell

WASHINGTON, Sept 5 (Reuters) - The Iraqi National Police force should be scrapped and reorganized because of ethnic divisions in its ranks, a new U.S. report said on Wednesday as U.S. lawmakers argued over how to measure progress in Iraq.

"The National Police have proven operationally ineffective," said the independent commission headed by retired Marine Gen. James Jones, the former top U.S. commander in Europe. The report's conclusions and recommendations were obtained by Reuters.

"Sectarianism in its units undermines its ability to provide security; the (police) force is not viable in its current form," the report said. "The National Police should be disbanded and reorganized."

The report, due to be officially released on Thursday, was more positive about the Iraqi army, saying it is capable of taking over an increasing amount of combat duties from multinational forces in Iraq. But the army would not be able to operate independently within the next 12 to 18 months, the document said.

The Pentagon immediately took issue with the commission's recommendations on the police force, although it acknowledged there were problems.

"We do not believe it is necessary to disband the national police force," Pentagon spokesman Geoff Morrell said. "We also acknowledge there have been real sectarian problems within the national police force. We recognize that. The Iraqi government recognizes that."

The security assessment is one of several reports on Iraq ordered by the U.S. Congress at a pivotal time as lawmakers resume debate on the unpopular war and President George W. Bush reviews his strategy.

U.S. lawmakers face decisions in the coming weeks on whether to approve more funding for the war, and Democratic leaders are seizing on the reports as evidence that Washington should start bringing home its troops. A small but growing number of Republicans have also expressed doubts about the war.

A separate, largely negative account by a congressional investigative agency, the Government Accountability Office (GAO), on Tuesday said that violence remained high in Iraq and that the Iraqi government failed to meet 11 of 18 political and military goals set by Congress in May.

The White House will submit its own assessment by Sept. 15, after testimony to Congress next week by U.S. Iraq commander Gen. David Petraeus and U.S. ambassador to Iraq, Ryan Crocker. The report is expected to provide Bush with a rationale for the way forward in Iraq.

'UNEVEN PROGRESS'

Overall, the Jones commission, which was asked to assess the Iraqi military and police forces, found that the Iraqi security forces had made "uneven progress" while grappling with tensions and violence stoked by various factions as well as neighboring countries, such as Iran and Syria.

But while the Army and Special Operations Forces showed progress in counterterrorism capabilities, border security forces were ineffective, and Iraqi police appeared unable to help deny terrorists safe haven in Iraq, it said.

It was highly critical of the Iraqi Ministry of Interior overseeing the police, saying sectarianism and corruption were pervasive.

The 20-member commission included retired military officers, chiefs of police and former defense officials who visited Iraq three times for a total of 20 days.

Some Democrats said that whatever the shortcomings of the Iraq security forces, Congress should ban spending any more U.S. money on training and equipping them.

"We risk the danger that weapons provided to them will one day be turned against the United States and our allies in the region," said Rep. Maxine Waters, a California Democrat who has opposed the war.

U.S. lawmakers argued on Wednesday over the earlier report from the GAO whose director, David Walker, called the Iraqi government "dysfunctional."

"What we see is not a pretty picture," said House of Representatives Foreign Affairs Committee Chairman Tom Lantos, a California Democrat. "Prime Minister Maliki has run his government like a Shiite factional leader."

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