Britons will "inevitably" be fighting alongside the extremist group which has overrun large parts of Iraq, Foreign Secretary William Hague told MPs.
Mr Hague said it was possible that Britons who had travelled to Syria to fight in the country's bloody civil war could be among militants in the Islamic State of Iraq and the Levant (Isis), which the Foreign Secretary called the "most violent and brutal militant group in the Middle East".
In a Commons statement updating MPs on the crisis, Mr Hague repeated his position that there was no prospect of a British military intervention to tackle Isis in Iraq, but said counter-terrorism support could be offered to the government in Baghdad and a Ministry of Defence (MoD) team had been sent to the country to assist embassy staff in contingency planning.
He said the majority of Isis' members were Iraqi or Syrian but " it also includes a significant number of foreign fighters among its ranks".
Mr Hague said: "As I have previously told this House, we estimate the number of UK-linked individuals fighting in Syria to include approximately 400 British nationals and other UK-linked individuals who could present a particular risk should they return to the UK."
He said "some of these, inevitably" are "fighting with" Isis.
The Foreign Secretary said: "We are taking action in three areas: promoting political unity among those who support a democratic Iraqi state and stability in the region; offering assistance where appropriate and possible and alleviating humanitarian suffering.
"We have made it clear this does not involve planning a military intervention by the United Kingdom."
Giving further details of what UK involvement could be, Mr Hague said: " We are discussing with the Iraqi government areas for co-operation, including the possibility of offering counter-terrorism expertise.
"We are also providing consular assistance to a small number of British nationals who have been affected. For this purpose a UK MoD operational liaison and reconnaissance team arrived in Baghdad on Saturday to help assess the situation on the ground and assist the embassy on contingency planning."
The Foreign Secretary said the Government would "intensify our efforts in the coming weeks to tackle this serious threat to international peace and security".
Mr Hague has also discussed the crisis in Iraq with his counterpart in Iran.
His phone conversation with foreign minister Mohammad Javad Zarif came amid reports that Tehran is considering military support to the Shia-led administration in neighbouring Iraq, which has come under assault from militants from the Sunni-dominated Isis.
Reports suggest that the US is considering direct talks with Iran on the crisis. Representatives of Iran and the Western powers were meeting in Vienna today to discuss international concerns about Tehran's nuclear ambitions.
US president Barack Obama is weighing up what help to give Baghdad to counter Isis, which has taken control of major cities in the north.
The Pentagon has sent an aircraft carrier to the Gulf in advance of potential air strikes amid calls for Mr Obama to talk with Iran over a coordinated response.
Mr Hague said: "The United States, which is the country with the most appropriate assets and capabilities, is considering a range of options that could help the Iraqi security forces push back on Isil (Isis) advances.
" President Obama has been clear that action taken by the United States will only succeed if accompanied by a political response from the Iraqi government."
Deputy Prime Minister Nick Clegg said Britain would not attempt to "stand in the way" of a well-judged US initiative to restore order in Iraq.
Mr Clegg told a Whitehall press conference: "We are not providing active, frontline resources to any action that is taken but of course we will want to talk to the United States and other allies about what can be done.
"We are certainly not going to stand in the way of action that is well-judged and well-targeted in order to try to re-assert some semblance of order in Iraq. I think only the United States can deploy the kind of resources that may make a difference."
Former prime minister Tony Blair took to the media yesterday to make the case for a tough response to the extremist insurgency - arguing that it was caused by a failure to deal with the Syria crisis, not the invasion by US and British forces 11 years ago.
Labour's shadow foreign secretary Douglas Alexander said it would be "facile" to blame the current crisis purely on the Iraq War, but said the fears of those who opposed the military intervention had been vindicated.
"Inevitably and understandably these events have rekindled the debate around the military intervention in Iraq 11 years ago," he told the Commons.
"For most British people, including many of us who supported the action at the time, the fears of those opposed to the intervention have been vindicated by subsequent events.
"It is futile to deny that subsequent history, as surely as it would be folly to repeat it.
"Yet it is also facile to suggest that the crisis affecting Iraq today can be attributed solely to the consequences of intervention. Such an account denies the truth that the slide towards crisis in Iraq has been exacerbated by the civil war in Syria."
He criticised Iraqi president Nouri al-Maliki, who leads a Shiite-dominated administration, of adopting a " sectarian rather than inclusive approach".
Mr Hague said Isis had taken advantage of "political disaffection" including among officers and soldiers from Saddam Hussein's era, and Sunni tribal fighters who had "lost trust" in the Baghdad government.
"Overcoming this will require a concerted political effort by the government", he said, including working with the administration in the semi-autonomous Kurdistan administration.
He said the Iraqi supreme court had ratified many of the results of April's elections and called for the full results to be announced as soon as possible "to allow for the rapid formation of a new government in Baghdad".
Lakhdar Brahimi, the former United Nations and Arab League special envoy to Syria, said the 2003 invasion of Iraq had led to the current crisis.
Asked if Isis was a "direct product" of the Iraq War, Mr Brahimi told Channel 4 News: " I think so, yes, sure. The regime of Saddam Hussein was very bad indeed but it certainly did not create any space for any kind of terrorist organisation, especially not al Qaida. Contrary to what I think both president Bush and prime minister Blair said."
He said Iraq was "absolutely" less safe now than in 2003 when "it was the republic of fear, but it was quite safe - if you did not meddle in politics nobody would bother you".
Mr Brahimi added: " A lot of people in the region who were interested in listening to Mr Blair don't any more."