US Defense Secretary Chuck Hagel said on Thursday the Pentagon is still laboring under the shadow of budget uncertainty despite a deal by Congress that reopened the federal government and let some 7,000 furloughed defense employees return to their jobs.

Hagel urged lawmakers working to craft a government-funding bill by mid-January to show the flexibility needed to reach a long-term spending agreement. He warned that further fiscal uncertainty would undermine US national security and erode the US' standing in the world.

"Our allies are asking questions: Can we rely on our partnership with America? Will America fulfill its commitments and its promises?" Hagel told a Pentagon news conference.

"These are huge issues for all of us and they do affect our national security ... and our standing in the world."

The deal reached by Congress and the White House on Wednesday authorized the Pentagon to spend at the annualized level of $496 billion in the 2014 fiscal year that began on Oct 1. That is the same level as in the 2013 budget.

The deal also set a mid-January deadline for Congress to reach a new spending accord for the year.

Defense officials noted the temporary spending deal is rigidly based on last year's priorities. For example, it authorizes spending on ships that have already been built and does not give the department the flexibility it needs to adjust to new priorities or start new projects.

Hagel held his news conference as some 7,000 civilian defense employees who had been placed on unpaid leave began to return to work after the end of the government shutdown.

Nearly half of the department's 800,000 civilian workers were given a leave of absence at the start of the shutdown. Most were allowed to return four days later when government attorneys concluded that a new law passed by Congress would let the Pentagon expand the number of people who could continue working.

"I am deeply aware of the harm that this shutdown inflicted on so many of our civilian personnel," Hagel said. "All of our leaders, civilian and military alike, deeply regret what this shutdown has done to our people, and we'll work to repair the damage beginning today."

Still, more damage to morale could be on the way. Under a 2011 budget law, Pentagon spending is supposed to be capped at $475 billion. If Congress approves spending higher than that amount, the military will face automatic, across-the-board cuts to bring its budget in line.

Unless Congress acts to eliminate the cuts, known as sequestration, the Pentagon is likely to face further reductions in the size of its civilian and military workforce. Hagel and Pentagon Comptroller Robert Hale declined to say how many personnel might be cut.

"I think all of us are aware that it will be a somewhat different, smaller military if we have to go through with those cuts," Hale told reporters.

A review conducted by Hagel earlier this year concluded that the US army might have to shrink from a planned 490,000 troops to between 380,000 and 450,000 if the budget cuts continue. The Marine Corps might have to shrink from 182,000 to between 150,000 and 170,000.

"The abruptness and the steepness of those cuts give us no flexibility to glide it down in a responsible way to make sure that ... our mission matches our resources and that we are able to fulfill the strategic interest of this country," Hagel said.

Reuters