Around half a million people have fled Mosul as a result of the takeover by Islamist insurgents and such is the extent of the crisis that the US is reportedly to open direct dialogue with Iran about how to tackle it.
Foreign Secretary William Hague has stated there will be no military intervention by the UK and that instead, the Iraqi government carries the "heavy responsibility" of bringing the situation under control, the BBC reports.
Photos have been published online appearing to show the mass execution of Iraqi soldiers by militants belonging to the Islamic State of Iraq and the Levant (ISIS), which has taken over parts of Iraq.
The US government is reportedly preparing to open direct talks with Iran about how to halt the advance of ISIS, as they set their sights on Baghdad.
The UN refugee agency UNHCR said hundreds of thousands of Iraqis have sought shelter in Iraq's Kurdistan region, many arriving with little more than the clothes they were wearing when they fled their homes.
While some are staying with relatives, other families are sheltering in schools, mosques, churches and unfinished buildings.
The UNHCR has helped the Iraqi government pitch tents at a transit camp near the Khazair checkpoint, around 40km from Mosul, that is initially expected to house around 3,000 people.
More camps are being erected at two sites in Minara, south of the Bedrike checkpoint and Zummar, near Sehela.
UNHCR said some people had already chosen to return home after hearing water and electricity supplies had been restored. Others decided they would rather go home than stay in mosques and others buildings.
The agency said, however, that with the sudden mass movement of people, there were still "enormous new needs".
Canon Andrew White, chaplain of St George's Anglican Church in Baghdad, is currently in the UK fundraising for people affected by the "terrible" crisis.
"Things have moved from terrible to desperate in much of Iraq," he wrote on his Facebook page.
"Baghdad is now closing down in fear."
The situation is so dangerous that Canon White has told his assistant, Sarah Ahmed, not to return to Baghdad for the time being.
"It is just too desperate," he said.
In an earlier post last week, he said the needs of the people in Iraq had become "so great".
"Our beloved Iraq remains in total chaos with the militants of ISIL heading towards Baghdad. We are living in total crisis," he said.
He is appealing to people to donate to the Foundation for Relief and Reconciliation in the Middle East, which he is president of.