In a speech to the IMF's annual meeting in Tokyo, Lagarde said banking regulators had told her that reforms of the financial system were incomplete and in many cases banks were as unsafe as before the collapse of Lehman Brothers in 2008.
She said policymakers needed to take immediate action to resolve issues hanging over from the financial crisis.
Europe has come under fire for its failure to end the debt crisis in the euro currency union. Leaders in the US and Asia have become frustrated at delays in agreeing measures to bolster Greece, Spain and Portugal.
Largarde avoided direct criticism of eurozone leaders but warned that only swift action could end the uncertainty that is hitting economies across the world.
The IMF cut its global growth forecast this week for the second time since April. Lagarde said Asian economies had been some of the hardest hit by the slowdown that most analysts believe follows the failure of European leaders to deal with the debt crisis.
Lagarde said: "We expect action and we expect courageous and co-operative action on the part of our members."
The IMF has expressed frustration with Europe's piecemeal response to its debt crisis and warned that a recent respite in borrowing costs for debt-laden countries such as Spain may prove short-lived unless eurozone leaders come up with a comprehensive and credible plan.
Standard & Poor's cut its crdit rating on Spain on Wednesday to a level just above junk territory, and Moody's may soon follow.
The IMF itself has come under fire after it admitted in its World Economic Outlook report that officials underestimated the effects of austerity measures on economic growth.
The report found that previous estimates that for every £1 of spending cuts the economy shrank by 50p were wrong and the economy shrank by around £1.30 instead.
The IMF was a strong supporter of austerity measures adopted by Western countries, including the UK, in the aftermath of the financial crisis.
Most countries that adopted austerity programmes have missed their deficit reduction targets after a sharp slowdown in economic growth hit tax revenues and private sector activity.
The IMF has U-turned in recent months and urged government to allow their austerity reforms to be planned over a longer period to lessen the impact on growth.
The chancellor, George Osborne, is expected to admit next month he has missed at least one of his key deficit reduction targets at his Autumn Statement. He has already announced an extension of the government rolling five-year austerity regime to 2018.
Lagarde said she backed the IMF's chief economist, Olivier Blanchard, who argued it was necessary to pursue government spending cuts or risk a backlash from international money markets and a rise in borrowing costs.
Oxfam said there was a danger that the IMF's focus on the eurozone risked losing sight of the effects of the economic slowdown on the poorest. "It's imperative that the poorest countries are not overlooked at this meeting. Europe's crisis needs to be fixed because the fallout is seriously threatening developing countries.
"Oxfam's research shows a Eurozone breakup could cost the world's poorest countries $30bn in lost trade and foreign investment. The IMF must work with poor countries to keep their fragile growth going, and to boost counter-cyclical spending essential for social stability and growth."
The IMF is also under pressure from member states in the developing world who want greater representation on its governing board. Its 188 member countries meet on Friday and Saturday, and are expected to fall short of a goal to implement voting reforms that would give large emerging economies greater say and elevate China to the number three spot in IMF power.
A territorial dispute between Japan and China added another element of disharmony. China's top central bank and finance ministry officials backed out of the meetings and sent deputies to Tokyo instead.
China has objected to the purchase by Japan of the disputed Diaoyu/Senkaku islands, which it has claimed since the 1970s.
Lagarde said she hoped the world's second and third-largest economies could resolve their differences "harmoniously and expeditiously." "I think they lose out by not attending the meeting," she said of the Chinese officials. "And they will be missing something great."
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image: © Marie-Lan Nguyen