Military spending reached 1.035 trillion dollars (841 billion euros) in 2004, or 162 dollars for every inhabitant of the earth, up from 956 billion dollars in 2003, it said in its annual report.

In real terms, spending was just marginally below what it was at the height of the Cold War in the late 1980s.

American military spending rose rapidly between 2002 and 2004 as a result of massive budgetary allocations to fight "the global war against terror", primarily in Iraq and Afghanistan, SIPRI noted.

"The main explanation for the current level of, and trend in, world military spending is the spending on military operations abroad by the US, and to a lesser extent, by its coalition partners," it said.

Washington alone outspent the entire developing world in military goods, accounting for 47 percent of the worldwide figure.

But the high financial burden shouldered by the Bush administration may simply be the price for having opted to fight its war in Iraq with little institutional backing, especially from the UN, SIPRI said.

"The US today possesses supreme power by most reckonings, but was limited in what it could achieve in Iraq without institutional backing, and is labouring under heavy costs as a result," SIPRI head Alyson Bailes wrote.

Some countries were seeing the benefits of cooperation and it was therefore "hasty to assume that the unilateral rather than the multilateral approach to wielding power will shape the globe's future," she said.

Shunning North-South cooperation to meet transnational threats, "sadly, many actions of the US and other 'northern' powers since 2001 seem rather to have polarized attitudes further," Bailes said.

"The events of the past few years have done little to bring global solutions closer," she said.

There were 19 major armed conflicts in 2004 each with more than 1,000 battle deaths per year.

Most are longstanding and only three -- the conflict against Al-Qaeda, the conflict in Iraq and the conflict in Darfur -- are less than 10 years old.

"Paradoxically, the long-standing and recurrent nature of many conflicts may make them less visible internationally," SIPRI said, citing "scant media attention" accorded in 2004 to conflicts in Nepal and Uganda.

SIPRI noted that there were several initiatives to limit the use and proliferation of weapons of mass destruction, with a special emphasis on North Korean and Iranian nuclear programmes.

In pre-war Iraq, SIPRI said that American and allied claims that the country possessed such weapons "were inaccurate and unsupported by the available evidence".

However, the removal of Saddam Hussein combined with Libyan decision to abandon weapons of mass destruction and ballistic missiles "created a unique opportunity to make progress towards the goal of establishing a WMD-free zone in the Middle East".

But while the world was watching out for mass destruction weapons "conventional arms races are unconstrained".

The world's top arms manufacturers have grown "enormously" in size, primarily through acquisitions, and are now comparable to some of world's big multinational companies, SIPRI said.

The total turnover of the 100 top arms companies is equivalent to the entire combined national economic output of the world's 61 poorest countries, SIPRI noted.

At the same time, weapons companies are notoriously secretive, which means "only limited information is available on commercial arms sales worldwide", SIPRI said, calling on governments to push for more transparency.

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