By Stephen Kalin

BAGHDAD (Reuters) - The United States said on Wednesday it would give Iraq $181 million in humanitarian aid, anticipating a wave of displaced people when Iraqi forces launch a drive to recapture the northern city of Mosul from Islamic State.

The advance on Mosul, the biggest city held by the militant group also known as ISIL, could begin as soon as next month.

"We are now in a position where ISIL here in Iraq is increasingly on the run and on the ropes, and the urgent work ahead is to complete that effort. And Mosul, of course, is the big piece ahead of Iraq and ahead of us," Deputy Secretary of State Antony Blinken told reporters in Baghdad.

On a visit to discuss planning for the offensive with Prime Minister Haider al-Abadi and other officials, he said the money would be used to pre-position emergency food and relief supplies.

The United Nations expects up to 1 million people could flee their homes in Mosul, the group's de facto Iraqi capital. Critics say preparations for the humanitarian and political fallout have not kept pace with military gains.

The additional aid brings U.S. humanitarian assistance to more than $1 billion since 2014, when a U.S.-led coalition started bombing Islamic State in Iraq and neighboring Syria as well as providing training and advice to Iraq's security forces.

There is no clear plan yet for how Mosul, Iraq's second-largest city, will be managed if and when it is recaptured, or how pro-government forces will be positioned to avoid aggravating ethnic and sectarian tensions in the diverse region.

Blinken said Islamic State has lost half the Iraqi territory it seized in 2014, when the army and police dropped their weapons and fled despite billions of dollars of aid from Washington since the 2003 U.S.-led invasion that toppled Saddam Hussein.

He said the Mosul offensive would not be easy, and the timing was up to the Iraqis. Iraqi commanders have indicated the operation could start by late October.

Blinken is due to visit Erbil on Thursday to meet leaders of the Kurdistan Regional Government, whose peshmerga forces are expected to participate in the Mosul campaign.

(Reporting by Stephen Kalin; Editing by Mark Trevelyan)