AN Iraqi refugee last night warned that the Government's policy on failed asylum seekers could increase the risk of creating a new breed of terrorist.

There are hundreds of people from the Middle East in the North-East who have exhausted all the legal avenues to gain asylum.

But despite the removal of Saddam Hussein, they cannot be sent home because the situation is still too dangerous.

A 29-year-old Iraqi Kurd last night said failed asylum seekers have had their financial support withdrawn and have no idea what will happen to them.

Ahmed - whose name has been changed - has been in the region for four years, and says he is pro-west and rejects Islam and violence.

But he believes the current system forces people to turn to crime, and fears they could be exploited by terror cells in the UK.

Ahmed, who lives in Darlington, said: "It is bad and against the interests of this country to have this policy.

"Some of these people come from bad backgrounds and are experienced in war.

"The Government's policy could end up turning people into terrorists. I feel sorry for the UK."

There are 200 people in the Tees Valley who have already reached the end of their legal battle to gain asylum.

Pete Widlinski, a spokes-man for North-East Coalition for Asylum Rights, echoed Ahmed's fears.

He said: "They are the most vulnerable people in society and are the victims of criminals who force them into crime and prostitution because they have got no other means of existence.

"The treatment they get means there is no support and people cannot go home so they may be susceptible to fundamentalist propaganda.

"The way you treat people can come back to haunt you."

A Home Office spokesman said failed asylum seekers were entitled to "hard case" support if they took part in the Voluntary Returns to Iraq Scheme.

This has been rejected by thousands of failed applicants because they are sent to a hostel outside the North-East with no cash and must take the next plane home.

The spokesman said: "We plan to commence an enforced returns programme for failed asylum seekers from Iraq as soon as we have finalised the practical arr-angements.

"There is clearly a difficult position in those parts of Iraq most affected by insurgent action, but we do not accept this applies to all areas."