Kennedy also said the Bush administration has failed to account for nearly half of the $4 billion the war is costing each month. He said he believes much of the unaccounted-for money is being used to bribe foreign leaders to send in troops.
In an interview with The Associated Press, he called the Bush administration's current Iraq policy "adrift."
The White House declined to comment.
The Massachusetts Democrat also expressed doubts about how serious a threat Saddam Hussein posed to the United States in its battle against terrorism. He said administration officials relied on "distortion, misrepresentation, a selection of intelligence" to justify their case for war.
"There was no imminent threat. This was made up in Texas, announced in January to the Republican leadership that war was going to take place and was going to be good politically. This whole thing was a fraud," Kennedy said.
Kennedy said a recent report by the Congressional Budget Office showed that only about $2.5 billion of the $4 billion being spent monthly on the war can be accounted for by the Bush administration.
"My belief is this money is being shuffled all around to these political leaders in all parts of the world, bribing them to send in troops," he said.
Of the $87 billion in new money requested by President Bush for the war, Kennedy said the administration should be required to report back to the Congress to account for the spending.
"We want to support our troops because they didn't make the decision to go there…but I don't think it should be open-ended. We ought to have a benchmark where the administration has to come back and give us a report," he added.
Kennedy said the focus on Iraq has drawn the nation's attention away from more direct threats, including al Qaeda, instability in Afghanistan or the nuclear ambitions of North Korea.
"I think all of those pose a threat to the security of the people of Massachusetts much more than the threat from Iraq," Kennedy said. "Terror has been put on the sidelines for the last 12 months."
Kennedy was one of 23 senators who voted last October against authorizing Mr. Bush to use military force to disarm Iraq.
Earlier this year, he supported a Democratic amendment that would have delayed most of the president's proposed tax cuts, and most spending increases, until the administration provided cost estimates for the Iraq war. The amendment failed.