(Removes reference to military inspector general in paragraphs 1 and 2)

WASHINGTON, July 28 (Reuters) - Iraq has stopped taking over management of new buildings and other reconstruction projects that cost Washington more than $5 billion, forcing the United States to run them or give them to local governments, a U.S. inspector general has found.

The United States has completed 2,797 reconstruction projects in Iraq at a cost of $5.8 billion but as of May 31 only 435 projects worth $501 million have been formally transferred to the Iraqi national government, according to an audit by the special inspector general for Iraq reconstruction.

"The U.S. government's progress transferring completed capital projects to the (government of Iraq) has been slow," the report said.

Initial success slowed after a newly elected government took office in May 2006, the report said. The finance ministry was responsible for "effectively halting further transfers at the national level in July 2006," the report said.

Hoping to address the backlog, officials developed alternative approaches including giving control of some projects to local Iraqi officials. A total of 1,141 projects worth just over $2 billion have been accepted by local Iraqi officials.

This has meant additional maintenance costs for the U.S. government and fewer assets for Iraq to use when applying for World Bank and other loans, a report released on Friday said.

"Delays in transferring completed projects at the national level mean that fewer assets are available to the (government of Iraq) as leverage for loans and could result in additional sustainment expenses for U.S. government agencies," the report said.

Officials have drafted a new asset transfer agreement but it has yet to be signed, the report said.

"The lack of a bilateral agreement on asset transfer may impact the success of the U.S. reconstruction effort in Iraq," the report said.

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