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By Jonathan Landay

WASHINGTON Feb 9 (Reuters) - Islamic State is likely to step up "the pace and lethality" of its attacks in the months ahead as it seeks to fan the flames of international conflict, the director of the U.S. Defense Intelligence Agency said on Monday.

Speaking to a security conference, Marine Corps Lieutenant General Vincent Stewart linked his warning to the militant group's establishment of "emerging branches" in Mali, Tunisia, Somalia, Bangladesh and Indonesia.

He also said he would not be surprised if Islamic State, which has created a self-proclaimed Caliphate across swaths of Syria and Iraq, extended its operations from the Sinai Peninsula deeper into Egypt.

"Last year, Daesh remained entrenched on Iraqi and Syrian battlefields and expanded globally to Libya, Sinai, Afghanistan, Nigeria, Algeria, Saudi Arabia, Yemen and the Caucasus," Stewart said, using a derisive Arabic acronym for Islamic State.

"Daesh is likely to increase the pace and lethality of its transnational attacks because it seeks to unleash violent actions and to provoke a harsh reaction from the West, thereby feeding its distorted narrative" of a Western war against Islam, he said.

Stewart's comments came a day before he and other U.S. intelligence officials are set to deliver an annual worldwide threat assessment to Congress.

The Sunni Muslim militant group seeks not only to escalate conflict with the West, but also with Islam's minority Shiite branch, just as Shiite extremist groups like Lebanon's Hezbollah are stoking tensions with Sunnis, Stewart said.

"These threats are exacerbated by the security challenges of the Middle East, which is now facing one of the most dangerous and unpredictable periods in the last decade," he said.

Islamic State has as many as 25,000 fighters in Syria and Iraq, down from a previous estimate of up to 31,000, according to a U.S. intelligence report revealed by the White House last week.

U.S. officials cited factors such as battlefield casualties and desertions to explain the roughly 20 percent decrease in fighters, and said the report showed a U.S.-led campaign to crush Islamic State was making progress.

(Editing by Warren Strobel and Tom Brown)