The UN says militants get weapons from the deserters
More than 80% of Somalia's soldiers and police - about 15,000 members - have deserted, some taking weapons, uniforms and vehicles, the UN says.
The head of the UN monitoring group on Somalia, Dumisani Kumalo, said Islamist insurgents got many of their weapons and ammunition from the deserters.
The head of the Somali police rejected the UN's report.
Meanwhile, the African Union wants peacekeepers from Burundi and Uganda to stay when Ethiopian troops leave soon.
In the UN report, Mr Kumalo, the South African ambassador, also said most of the Somali government's security budget - supposedly 70% of its total budget - disappeared through corruption.
The Somali police chief, Abdi Awale, said all the money had been properly spent, and only a few soldiers and police officers had deserted.
With Somalia's fragile transitional government facing a growing insurgency, the African Union's top diplomat said he hoped the 3,400 peacekeepers currently stationed in Mogadishu would stay - despite claims by the Ethiopian prime minister that they would leave.
"We have asked the African countries to increase their participation in Somalia, asked the UNSC (UN Security Council) to join us there, and to the AU partners to help us financing this force," Jean Ping said.
"A withdrawal from Somalia is something we cannot accept, not only the AU, but also the rest of the world," he said, according to AFP news agency.
Mr Ping's comments come in response to a statement in the Ethiopian parliament by Prime Minister Meles Zenawi that African Union peacekeepers wanted to leave Somalia.
The AU force, from Uganda and Burundi, had been expected to stay and even beef up its presence to make up for the planned Ethiopian pull-out at the end of the month.
Ethiopia has said Burundi and Uganda have asked its army to help their peacekeepers pull-out, but Burundi and Uganda have denied this.
The United Nations Security Council is due to consider a US proposal to send a full UN peacekeeping force to Somalia - something the AU has been pressing for.
Ethiopia troops intervened two years ago to oust Islamist forces from the capital, Mogadishu.
But different Islamist factions are again in control of much of southern Somalia.