Russia's alleged tactics in the Ukraine conflict including covert military action and social media campaigns could inspire other nations such as China and Iran, a top defence think-tank warned Wednesday.

Most armies around the world are ill-prepared for this new type of "hybrid warfare", the International Institute for Strategic Studies (IISS) said in its annual Military Balance report covering 171 countries.

It said NATO should act with "urgency" to develop responses to such threats, which had the potential to "rapidly destabilise" Western states.

The study said Moscow had waged "limited war for limited objectives" in Ukraine while maintaining a "deniability" which had confused the West's response.

Russia denies supplying troops and weapons to rebels in Ukraine.

As the United States considers whether to send arms to Ukraine, it also detailed how Kiev's armed forces had been "hollowed out" by low investment and were largely reliant on Soviet-era equipment.

By contrast, Russia's defence budget is set to rise from 2.1 trillion rubles ($31.6 billion dollars, 27.9 billion euros) in 2013 to 3.29 trillion rubles this year, the IISS said.

As well as Ukraine, the report, released in London, turned the spotlight on the Islamic State group and North Korea's plans to develop an inter-continental ballistic missile.

- 'Global ramifications' -

The report said Russia was waging a form of war in Ukraine which combined low-level conventional and special operations with campaigns on social media to shape public opinion.

Such tactics represent a "grave threat to NATO's collective security" because they operate "in grey areas that exploit seams in the alliance," it said.

Their effect could also spread further than Ukraine.

"Policymakers may anticipate that some current or potential state or non-state adversaries, possibly including states such as China and Iran, will learn from Russia's recent deployment of hybrid warfare," the report said.

"These lessons might not necessarily be applied in conflicts with Western states but their potential to rapidly destabilise the existing order could, if applied in other zones of political and military competition, mean they have global ramifications."

Some of the media tactics employed by IS jihadists in Iraq and Syria, including using social media to recruit fighters, had "thematic similarities" with those used in Ukraine, the study said.

It warned that Western armies, many emerging from a 13-year war in Afghanistan and facing squeezed budgets, were still focused on fighting conflicts using more conventional tactics.

Given the threat, they should be looking at how to counter enemy propaganda as well as gathering intelligence and improving the readiness of military forces, the IISS said.

By contrast, groups such as IS thrive on their flexibility.

"The hybrid, adaptable nature of ISIS (another term for IS) -- part insurgency, part light infantry and part-time terrorist group -- proved key to its advances," the report said.

- N. Korea missile 'advances' -

In Asia, the development of China's military has increased in importance under President Xi Jinping as it faces a string of territorial disputes and seeks to deter US deployments in the region, according to the IISS.

China's defence spending now accounts for 38 percent of the total for Asia, up from 28 percent in 2010. The country's overall defence budget rose 12.2 percent last year.

"Beijing's military ambition is aimed at providing at least regional power projection and a conventional deterrent capacity to discourage external intervention," the report said.

This comes amid a tougher posture on defence in Japan, underpinned by a 2.2 percent increase in defence spending last year after a decade of virtually stagnant military budgets.

North Korea, the totalitarian hermit state led by Kim Jong-Un, has meanwhile made "significant advances" in its rocket and non-conventional weapons capabilities, according to the study.

The IISS highlighted that the eight months from February to September last year "involved the most intense rocket and missile testing the nation has ever conducted".

It added that "continued advances" in Pyongyang's quest for an inter-continental ballistic missile caused greatest concern but stressed the age of the country's defence material.

"North Korea remains reliant on a predominantly obsolescent equipment inventory," the report said.

"The extent to which dependency on this equipment affects morale is difficult to assess -- but it likely has an effect."