Italy on Wednesday issued its strongest warning yet about the danger of the Islamic State group establishing a stronghold in Libya that would threaten Europe's security and the stability of neighbouring states.

Addressing parliament, Foreign Minister Paolo Gentiloni said there was an "evident risk" of IS fighters in Libya forging an alliance with local militias or criminal gangs currently engaged in a multi-sided battle for control of the country.

He also warned that time was running out for the troubled north African state, and called for a "change of pace" in the international community's efforts to restore stability to a country that has descended into chaos.

 "There is an evident risk of an alliance being forged between local groups and Daesh and it is a situation that has to be monitored with maximum attention," Gentiloni told MPs. Daesh is the Arabic acronym for IS.

Gentiloni said it was clear the situation in Libya had deteriorated in recent weeks, raising the risks faced by Italy and neighbouring countries.

"We find ourselves facing a country with a vast territory and failed institutions and that has potentially grave consequences not only for us but for the stability and sustainability of the transition processes in neighbourging African states.

 "We have to be clear, the situation has deteriorated. The time at our disposal is not infinite and is in danger of running out soon."

Gentiloni stressed that Italy believed the solution to Libya's problems was political, not military.

 "Saying we are in the front line does not mean announcing adventures nor crusades," he said.