Charred vehicles are seen on the site of a suicide bomb attack in the Syrian capital's eastern Tahrir Square district, on July 2, 2017.

Islamic State (ISIS) is looking a shadow of its former self, having lost almost all trace of its self-proclaimed caliphate in Syria and Iraq.

But experts are predicting that the militant organization will regroup and return should the political and physical reconstruction of those two countries be unsuccessful.

Fearful of a resurgence of ISIS and its aims of setting up a religious state, analysts have warned an "Islamic State 2.0" or "al-Qaeda 3.0" could emerge.

"The Islamic State is almost defeated, but a radical Islamist insurgency will remain in both Iraq and Syria as the fighters turn to traditional terrorism," Ayham Kamel, practice head of Middle East and North Africa at Eurasia Group, told CNBC on Thursday.

"However, losing the pillars of its state, ISIS no longer represents a strategic threat to the integrity of either Iraq or Syria. There's even a possibility of alliances with al-Qaeda in Syria (the Nusra Front) as these configurations are usually fluid," he said.

"The danger here is that (with) absent reconstruction aid, terrorism will remain a key challenge. The core challenge is that the world continues to focus on military tools to defeat a problem that transcends an armed challenge."

ISIS is largely made up of Sunni militants from Iraq and Syria but has drawn jihadi fighters from across the Muslim world and Europe. Its origins lie in regional conflicts and instability going back decades, but the group came to prominence in 2014 when it was able to take over swathes of Iraq and Syria amid power vacuums in those countries.

Syrian and Iraqi government forces and disparate rebel groups, assisted by international forces, particularly in Syria, have fought to reclaim territories lost to ISIS over the last few years as it attempted to spread a caliphate — a state governed by a strict interpretation of Islam.

Faced with airstrikes and repeated attacks by ground forces, ISIS strongholds have been steadily recaptured from the group. Currently, it has few pockets of resistance left, leading many to believe ISIS is on the cusp of defeat.

Regeneration

Experts have warned that ISIS is unlikely to disappear, however, predicting that it will go to ground, regroup and regenerate.

Speaking at a counter-terrorism conference in London on Thursday, Jane Marriott, director of the Joint International Counter-Terrorism Unit (JICTU), said that although defeating ISIS was "the right thing to do," there were "no easy solutions" to resolving deeper issues in the region, such as sectarian conflict, economic hardship, and religious rivalries.

"Defeating the physical caliphate so it's no longer on a map has to be a good thing, it's the right thing to do," she said. "But you then have to get the follow-up right and if we, the international community, don't get the politics right, the reconstruction, the economic (element) and the governing solutions in the right place then it will lead to Daesh (ISIS) 2.0 or al-Qaeda 3.0."

"So it's about ensuring that the things that (governments) do are the right things and that ultimately they don't make the situation worse in the long run," she added.

Many towns and cities in parts of Syria and Iraq have been reduced to rubble during multiple battles to defeat ISIS. Millions are estimated to have been displaced by the fighting, with hundreds of thousands more killed in the Syrian civil war, according to international non-governmental organization Human Rights Watch.

As a result, the country faces years of reconstruction ahead. In the meantime, controversial President Bashar al-Assad remains in power.