US defense chief calls cyberspace battlefront of the future

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* Cyber security expert says warnings are not hyperbole

By David Alexander

WASHINGTON, Oct 19 (Reuters) - Cyberspace is the battlefield of the future, with attackers already going after banks and other financial institutions and developing the ability to strike U.S. power grids and government systems, Defense Secretary Leon Panetta said on Friday.

"We confront a whole new threat of warfare in (cyberspace). ... This is an area we've got to pay close attention to. This is the battlefront of the future," he told a business group in Norfolk, Virginia, a city at the center of one of the largest concentrations of military power in the United States.

Panetta's remarks came a week after he delivered a major policy speech on cyber security to a New York business group, saying the U.S. military could act pre-emptively if it detects an imminent threat of cyber attack.

U.S. banks and financial institutions have been under sustained attack in recent weeks by suspected Iranian hackers thought to be responding to economic sanctions aimed at forcing Tehran to negotiate over its nuclear program.

A group calling itself the Cyber Fighters of Izz ad-din Al Qassam has claimed credit for the disruptions, calling them a protest against an anti-Islam video posted on YouTube that has provoked violent protests across the Muslim world.

"As I speak, there are attacks going on in this country, cyber attacks, on financial institutions, on banks," Panetta told the business group on Friday, adding that Washington faces hundreds of thousands of attacks per day. He did not specify the country from which the attacks were originating.

"Now they are developing the capability to be able to go after our grid, our power grid, our financial systems, our government systems, and virtually paralyze this country," he said.

William Robertson, an assistant professor at Northeastern University in Boston who testified on cyber security legislation in Congress earlier this year, said in an interview the government is "quite understandably worried" about the threat.

"I don't think it's hyperbole," he added. "These kinds of attacks that he's talking about have actually been going on for quite some time. And they've been increasing in intensity lately."

Panetta said last week the United States has made significant investments in cyber forensics to deal with the problem of identifying the source of a cyber attack. He warned potential attackers that the United States has "the capacity to locate them and hold them accountable."

Robertson said identifying the source of a cyber attack remains difficult.

"Identity and attribution on the Internet are not very robust. If you look at kind of the underlying protocols that kind of power the Internet ... there's no real strong mechanism for identifying where something is coming from," he said.

Panetta also said that more pressure on Congress is needed to push it to act to avoid a round of automatic budget cuts due to go into effect in January.

The cuts would take another $500 billion from defense spending over the next decade, following a $487 billion cut in projected defense spending approved last year.

Panetta called the automatic cuts a "goofy mechanism" put into place by Congress to force lawmakers "to do what they are supposed to do" and deal with the U.S. budget deficits.

"So they put a gun to their heads and said if we don't do what's right we'll blow our heads off," Panetta said. "And they didn't do what is right and now the damn gun is cocked to go off in January."

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