The Foreign Office is being stretched "almost to the limit" as it attempts to cut spending at a time of international turbulence while having to cope with additional demands such as the London Olympics, MPs have said.
The Foreign Affairs Select Committee called for William Hague and his department to adopt a "more realistic approach" to what could be achieved given the cuts imposed in the 2010 spending review.
The MPs also raised concern about the future funding of the BBC World Service and strongly opposed plans for its wider commercialisation.
In its review of the FCO's performance and finances in 2012/13, the committee was told a planned 10% cut in the number of UK-based staff at the FCO would not be met by the original target of 2015, but will instead require an extra year.
The MPs heard the FCO was on course to make savings totalling approximately £170 million over the Spending Review period to 2014/15 but warned of the effect on the department.
The committee's report said: "There are signs that the FCO is being stretched, almost to the limit. One of the symptoms is the prospect that the department will need an extra year to meet its target of a 10% headcount reduction in UK-based staff, largely because of 'sustained pressure to deliver an ambitious policy agenda'.
"We believe the department may be in danger of trying to do too much at a time when capacity is being limited. A more realistic approach by the department and by ministers is needed, as well as a clearer definition of priorities."
The MPs said that "on top of the day-to-day business of sustaining a foreign policy at a time of particular turbulence in the Middle East and elsewhere", the FCO had also had to meet the demands of the 2012 Olympic and Paralympic Games, the expansion of the network of diplomatic outposts and an increased emphasis on commercial work.
"We conclude that in future the department will need to attach greater importance to living within its means and will need to recognise that there are limits to what it can take on," the MPs said.
Tory Sir Richard Ottaway, the committee's chairman, said: "We're sounding a warning. We have no problem with an active and ambitious foreign policy. But we're getting a distinct impression that the FCO may be trying to do too much when capacity is limited by a tough spending review settlement.
"It's actually had to increase staff in order to cope with policy demands, and it's not on track to meet its target of a 10% headcount reduction in UK-based staff by 2015. What we're saying is: be realistic, live within your means, and make sure that priorities are clearly defined."
From April this year the BBC World Service will cease to be funded by the FCO and will instead be paid for through the licence fee.
The committee welcomed the BBC's commitment to increase the World Service's funding by more than £5 million to £245 million from April, but called for funding levels for future years to be announced.
"We strongly welcome the increased funds which the BBC will make available to the BBC World Service in 2014/15 but, given the BBC's argument that licence fee funding offers greater financial security and scope for long-term planning, we are surprised that the BBC has announced figures only for 2014/15.
"We urge the BBC to announce funding levels for the BBC World Service for the remainder of the current BBC charter period and at least to maintain in real terms the 2014/15 funding levels."
The MPs opposed ideas for the future of the World Service, including wider commercialisation, and were also concerned that the protection for the World Service's interests within the corporation's governance structure "is not as strong as is being claimed, and the picture appears to us to be one of steady erosion of World Service influence within the BBC".
The committee recommended that the World Service should be represented on the BBC executive board and that the director of BBC global news should be a member of the management board.
A BBC spokesman said: "The World Service has undertaken commercial activity for many years, for instance through syndication to partner radio stations overseas.
"The World Service has been tasked with increasing this activity, first by the FCO in 2010, and then by the BBC Trust in last year's draft operating licence.
"We have introduced advertising on our Russian, Arabic and Spanish language online sites and trialled some advertising on our FM radio frequency in Berlin. The BBC's reputation for providing impartial and independent news will always take precedence over wider commercial goals.
"Beyond April 2014, if this position regarding commercial funding is maintained in our new operating licence, we will continue to explore appropriate opportunities which could lessen the cost of the World Service to licence fee payers.
"We have always made clear that commercial activity will only ever constitute a small proportion of our funding and that there will not be advertising on the World Service in the UK."
A BBC Trust spokeswoman added: "The detail and governance for any changes to the existing commercial funding arrangements for the World Service would be subject to agreement with the Government."
She went on: "We have secured better funding for the World Service, when it comes under the licence fee this April.
"Every year, the BBC Executive prepares a rolling three-year budget which is considered by trustees in March and this year's will take us through to the end of the current charter period.
"As in any organisation, budgets are subject to review depending on priorities and circumstances, but there is no intention to reduce the level of World Service funding."Suggest a correction