Much of Iraq is affected by chronic violence and crime and reconstruction of the country has stalled, according to Christian Aid.
Christian Aid said quality of life indicators had not improved
Oliver Birch, manager of the charity's Iraq programme, said it was difficult to predict "a future which would not include civil war and even partition".
International Development Secretary Hilary Benn stressed that there had been progress, but it would take time.
The comments came as insurgents killed 18 people in a police station attack.
Police said about 20 armed attackers freed prisoners during the attack in the town of Miqdadiya, 40 miles north of Baghdad.
Meanwhile, the UK and US governments have committed tens of millions of pounds to Iraq's reconstruction, but the task is immense.
Christian Aid's Mr Birch told Radio 4's Today programme that conditions in the country did not appear to be improving.
"Quality of life indicators in most sectors are no higher than, or even below, the sanctions period just before the coalition invaded in 2003," he said.
These indicators included infant mortality, malnutrition and water supply.
Mr Birch added that some areas of "local and probably national government were widely affected by corruption" and this was "probably by a greater extent even than in the Baathist time".
However, Mr Benn - who is in Baghdad to open a Department for International Development (DFID) funded centre to train water engineers, and hold talks with Iraq's foreign minister - said there had been progress.
"I think one has to recognise the progress that has been made three years on," he said.
"Iraq now has a stable currency, it's reduced its debt, schools and hospitals are functioning and more people have clean water and access to sanitation than was the case, certainly in the 1990s when the system collapsed completely."
He said vaccination programmes had lead to the decline of measles, mumps, polio and rubella in the country.
Mr Benn accepted that the electricity supply was "a problem" and that it was old and needed investment and skilled workers. He said the electricity supply was one factor which demonstrated the importance of "peace and democracy" for progress.
A democratic process was the "best hope" for change, said Mr Benn
He added that it was a" huge challenge" for Iraq to recover from its troubled history and this would take time.
Under Saddam Hussein's leadership things were run from the top and that had left a culture in which "people weren't used to taking responsibility" and were sometimes afraid to take decisions at a local level.
"It's a process and it's going to take time" and the best way was through a democratic process, said Mr Benn.
"It's about building blocks and that's why the political process is so important," he added.
"That's why, whatever people thought about the military action, I think everybody has an obligation to support the democrats and the democratic process here in Iraq because it offers the best hope of changing the lives of ordinary Iraqis," he said.