(Recasts; adds Pentagon comments, details throughout)

By Susan Cornwell and Kristin Roberts

WASHINGTON, Nov 20 (Reuters) - The Pentagon on Tuesday started shifting money between accounts to cover a shortfall caused by lawmakers' refusal to approve war funds, but Democrats called the move a scare tactic meant to silence critics who want troops pulled from Iraq.

The Defense Department will move $3.7 billion from a general operations fund and $800 million from a working capital fund to pay for wars in Iraq and Afghanistan, Pentagon press secretary Geoff Morrell said.

He warned the Army would run out of money in mid-February followed by the Marine Corps in mid-March if Congress did not approve the additional war funding quickly.

In fact, Gates, in an internal Pentagon memo obtained by Reuters, has ordered the Army and Marine Corps to start planning to cut base operations in case money does run out.

"The longer this goes on, the more precarious our situation becomes," Morrell told reporters.

But Democrats say the Pentagon is trying to scare people to win more funding from Congress.

"We've already provided all the money the administration will need to get them through to March and to avoid the horror stories that they are peddling," said House of Representatives Appropriations Committee Chairman Dave Obey, a Wisconsin Democrat.

Morrell rejected the charges of scare tactics.

"We're not out to issue propaganda. We're out to adequately fund our troops who are in battle right now," he said.

The Bush administration is seeking $196 billion in funds for Iraq and Afghanistan for fiscal 2008, which began on Oct. 1. Congress has approved $604 billion for the wars since 2001.

Congressional Democrats who want U.S. troops to come home have offered to pass $50 billion of the requested funding, but with strings attached, including a requirement that most U.S. troops leave Iraq by December 2008.

The House approved that plan but Senate Republicans blocked it last week, using rules that let the minority party stop the chamber from taking up a bill.

Control over funding is the main power lawmakers have over war operations, under the U.S. Constitution, and so they have often sought to tie funding for the 4-1/2 year war in Iraq to other requirements, including withdrawal timelines.

Democrats and President George W. Bush have had similar feuds over war funds in the past, but Congress always provided the cash before the Pentagon had to take drastic moves.

But Morrell said the climate had changed.

"I mean, we take members at their word when they say to us that they do not plan on passing a supplemental (bill on war funds) before they adjourn for Christmas. And that puts us in a very, very difficult situation."

Gates' warnings have been amplified by Deputy Defense Secretary Gordon England, who wrote to congressional leaders that funding delays would hurt the defense civilian work force, depot maintenance, base operations and training activities.

But Rep. John Murtha, chairman of the House defense spending panel, lambasted the Pentagon warnings for "scaring people," including the families of troops. "Because the Pentagon says it, you believe it?" he demanded of reporters at the news conference with Obey.

Still it was unclear, even to Murtha and Obey, how long Democrats could continue to delay the funding under heavy Bush administration pressure. (Additional reporting by Richard Cowan; Editing by David Alexander and Frances Kerry)

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