It is the most expensive embassy in the world, but hardly the most comfortable.

After five years of occupying the gilded halls of Saddam's Republican Palace, US diplomats in Iraq will complete their move into a new residence that has the charm of a high-security prison and about as much recreational space.

Today the empty, marble-tiled palace will be handed over to the Iraqis and US diplomats will be confined to a razor-wired compound with its own power station and water treatment plant.

During a visit by The Times to the collection of 21 low-slung buildings on 104 acres yesterday, its residents appeared rather grim. Although bigger than any other US embassy, there still is not enough space, some diplomats complained.

“They have partitioned a lot of the rooms,” said one. Two-bedroom apartments have been split into separate flats with one bedroom each. “Only VIPs still get a living room.”

The squeeze on space is because staff levels grew more than expected. In the political section the number of career officers has risen to 33, compared with 20 in the notoriously overstaffed French Embassy. There will be about 1,000 regular employees and 3,000 additional staff for security and other tasks.

On completion, the embassy will have a gym, cinema and pool. When construction began in 2005 the White House estimated the cost at $1.3 billion (£905 million). Its grounds are so large that diplomats use golf carts to get around. The carts have signs that say “Falling off could result in severe injury or death”.

Still, the diplomats have not lost their sense of humour. Recalling the 21-day dash from Kuwait to Baghdad during the initial invasion and the latest agreement, which gives US troops 36 months to leave, they ask: “What takes three weeks to get in and three years to get out, and it's not a marriage?” Yes, the correct answer is Iraq.

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