BRUSSELS—The International Monetary Fund has admitted to major missteps over the past three years in its handling of the bailout of Greece, the first spark in a debt crisis that spread across Europe.

In an internal document marked "strictly confidential," the IMF said it badly underestimated the damage that its prescriptions of austerity would do to Greece's economy, which has been mired in recession for the last six years.

The IMF conceded that it bent its own rules to make Greece's burgeoning debt seem sustainable and that, in retrospect, the country failed on three of its four criteria to qualify for aid.

But the fund also stressed that the response to the crisis, coordinated with the European Union, bought time to limit the fallout for the rest of the 17-nation euro area.

And while IMF officials said the lessons learned would lead them to take a tougher stance in future bailouts, they also said that there was little else the fund could have done at the time.