US Federal Reserve Chairman Ben Bernanke on Monday urged Congress to raise the nation's borrowing limit as Democrats and Republicans battle over the federal budget.

"It's very, very important that Congress take the necessary action to raise the debt ceiling to avoid the situation where the government doesn't pay its bills," Bernanke said at a University of Michigan forum.

The United States ran up against its current borrowing limit of $16.4 trillion at the end of 2012, but the Treasury says it is using "extraordinary measures" to extend the limit until late February.

"The right way to deal with this problem... is for Congress to do what it needs to do," Bernanke said.

"The way to address it is to have a sensible plan for spending and a sensible plan for revenue."

Earlier on Monday US President Barack Obama delivered a stern warning to rival Republicans against using the debt ceiling as leverage to get more spending cuts, saying the failure to raise it would sew financial chaos.

Congress's refusal to raise the debt limit beyond its current level of $16.4 trillion could delay key government payments.

Obama warned that this could include Social Security checks and veterans benefits, paychecks to troops, air traffic controllers, and the honoring of contracts with small businesses.