diff --git a/icu4c/source/tools/pkgdata/pkgdata.cpp b/icu4c/source/tools/pkgdata/pkgdata.cpp
index d9c2c62b8a2..a0e74830a47 100644
--- a/icu4c/source/tools/pkgdata/pkgdata.cpp
+++ b/icu4c/source/tools/pkgdata/pkgdata.cpp
@@ -751,46 +751,61 @@ static int32_t pkg_executeOptions(UPKGOptions *o) {
 static int32_t initializePkgDataFlags(UPKGOptions *o) {
     UErrorCode status = U_ZERO_ERROR;
     int32_t result = 0;
+    int32_t currentBufferSize = SMALL_BUFFER_MAX_SIZE;
+
     /* Initialize pkgdataFlags */
     pkgDataFlags = (char**)uprv_malloc(sizeof(char*) * PKGDATA_FLAGS_SIZE);
-    if (pkgDataFlags != NULL) {
-        for (int32_t i = 0; i < PKGDATA_FLAGS_SIZE; i++) {
-            pkgDataFlags[i] = (char*)uprv_malloc(sizeof(char) * LARGE_BUFFER_MAX_SIZE);
-            if (pkgDataFlags[i] != NULL) {
-                pkgDataFlags[i][0] = 0;
-            } else {
-                fprintf(stderr,"Error allocating memory for pkgDataFlags.\n");
-                return -1;
-            }
-        }
-    } else {
-        fprintf(stderr,"Error allocating memory for pkgDataFlags.\n");
-        return -1;
-    }
 
-    if (o->options == NULL) {
-        return result;
-    }
+    /* If we run out of space, allocate more */
+#if !defined(WINDOWS_WITH_MSVC) || defined(USING_CYGWIN)
+    do {
+#endif
+        if (pkgDataFlags != NULL) {
+            for (int32_t i = 0; i < PKGDATA_FLAGS_SIZE; i++) {
+                pkgDataFlags[i] = (char*)uprv_malloc(sizeof(char) * currentBufferSize);
+                if (pkgDataFlags[i] != NULL) {
+                    pkgDataFlags[i][0] = 0;
+                } else {
+                    fprintf(stderr,"Error allocating memory for pkgDataFlags.\n");
+                    return -1;
+                }
+            }
+        } else {
+            fprintf(stderr,"Error allocating memory for pkgDataFlags.\n");
+            return -1;
+        }
+
+        if (o->options == NULL) {
+            return result;
+        }
 
 #if !defined(WINDOWS_WITH_MSVC) || defined(USING_CYGWIN)
-    /* Read in options file. */
-    if(o->verbose) {
-      fprintf(stdout, "# Reading options file %s\n", o->options);
-    }
-    parseFlagsFile(o->options, pkgDataFlags, LARGE_BUFFER_MAX_SIZE, (int32_t)PKGDATA_FLAGS_SIZE, &status);
-    if (U_FAILURE(status)) {
-        fprintf(stderr,"Unable to open or read \"%s\" option file. status = %s\n", o->options, u_errorName(status));
-        return -1;
-    }
-#endif
-
-    if(o->verbose) {
-        fprintf(stdout, "# pkgDataFlags=");
-        for(int32_t i=0;i<PKGDATA_FLAGS_SIZE && pkgDataFlags[i][0];i++) {
-            fprintf(stdout, "%c \"%s\"", (i>0)?',':' ',pkgDataFlags[i]);
+        /* Read in options file. */
+        if(o->verbose) {
+          fprintf(stdout, "# Reading options file %s\n", o->options);
         }
-        fprintf(stdout, "\n");
-    }
+        status = U_ZERO_ERROR;
+        parseFlagsFile(o->options, pkgDataFlags, currentBufferSize, (int32_t)PKGDATA_FLAGS_SIZE, &status);
+        if (status == U_BUFFER_OVERFLOW_ERROR) {
+            for (int32_t i = 0; i < PKGDATA_FLAGS_SIZE; i++) {
+                uprv_free(pkgDataFlags[i]);
+            }
+            currentBufferSize *= 2;
+        } else if (U_FAILURE(status)) {
+            fprintf(stderr,"Unable to open or read \"%s\" option file. status = %s\n", o->options, u_errorName(status));
+            return -1;
+        }
+#endif
+        if(o->verbose) {
+            fprintf(stdout, "# pkgDataFlags=");
+            for(int32_t i=0;i<PKGDATA_FLAGS_SIZE && pkgDataFlags[i][0];i++) {
+                fprintf(stdout, "%c \"%s\"", (i>0)?',':' ',pkgDataFlags[i]);
+            }
+            fprintf(stdout, "\n");
+        }
+#if !defined(WINDOWS_WITH_MSVC) || defined(USING_CYGWIN)
+    } while (status == U_BUFFER_OVERFLOW_ERROR);
+#endif
 
     return result;
 }
@@ -1183,13 +1198,23 @@ static int32_t pkg_generateLibraryFile(const char *targetDir, const char mode, c
 
 static int32_t pkg_createWithAssemblyCode(const char *targetDir, const char mode, const char *gencFilePath) {
     char tempObjectFile[SMALL_BUFFER_MAX_SIZE] = "";
-    char cmd[LARGE_BUFFER_MAX_SIZE] = "";
+    char *cmd;
     int32_t result = 0;
 
+    int32_t length = 0;
+
     /* Remove the ending .s and replace it with .o for the new object file. */
     uprv_strcpy(tempObjectFile, gencFilePath);
     tempObjectFile[uprv_strlen(tempObjectFile)-1] = 'o';
 
+    length = uprv_strlen(pkgDataFlags[COMPILER]) + uprv_strlen(pkgDataFlags[LIBFLAGS])
+                    + uprv_strlen(tempObjectFile) + uprv_strlen(gencFilePath) + 10;
+
+    cmd = (char *)uprv_malloc(sizeof(char) * length);
+    if (cmd == NULL) {
+        return -1;
+    }
+
     /* Generate the object file. */
     sprintf(cmd, "%s %s -o %s %s",
             pkgDataFlags[COMPILER],
@@ -1198,6 +1223,7 @@ static int32_t pkg_createWithAssemblyCode(const char *targetDir, const char mode
             gencFilePath);
 
     result = runCommand(cmd);
+    uprv_free(cmd);
     if (result != 0) {
         return result;
     }
diff --git a/icu4c/source/tools/toolutil/flagparser.c b/icu4c/source/tools/toolutil/flagparser.c
index a09de57e2aa..507f2cefadb 100644
--- a/icu4c/source/tools/toolutil/flagparser.c
+++ b/icu4c/source/tools/toolutil/flagparser.c
@@ -1,13 +1,15 @@
 /******************************************************************************
- *   Copyright (C) 2009, International Business Machines
+ *   Copyright (C) 2009-2010, International Business Machines
  *   Corporation and others.  All Rights Reserved.
  *******************************************************************************
  */
 
 #include "flagparser.h"
 #include "filestrm.h"
+#include "cstring.h"
+#include "cmemory.h"
 
-#define LARGE_BUFFER_MAX_SIZE 2048
+#define BUFFER_DEFAULT_SIZE 512
 
 static void extractFlag(char* buffer, int32_t bufferSize, char* flag, int32_t flagSize, UErrorCode *status);
 static int32_t getFlagOffset(const char *buffer, int32_t bufferSize);
@@ -17,7 +19,9 @@ static int32_t getFlagOffset(const char *buffer, int32_t bufferSize);
  */
 U_CAPI void U_EXPORT2
 parseFlagsFile(const char *fileName, char **flagBuffer, int32_t flagBufferSize, int32_t numOfFlags, UErrorCode *status) {
-    char buffer[LARGE_BUFFER_MAX_SIZE];
+    int32_t currentBufferSize = BUFFER_DEFAULT_SIZE;
+    char* buffer = uprv_malloc(sizeof(char) * currentBufferSize);
+    UBool allocateMoreSpace = FALSE;
     int32_t i;
 
     FileStream *f = T_FileStream_open(fileName, "r");
@@ -26,18 +30,43 @@ parseFlagsFile(const char *fileName, char **flagBuffer, int32_t flagBufferSize,
         return;
     }
 
-    for (i = 0; i < numOfFlags; i++) {
-        if (T_FileStream_readLine(f, buffer, LARGE_BUFFER_MAX_SIZE) == NULL) {
-            *status = U_FILE_ACCESS_ERROR;
-            break;
-        }
-
-        extractFlag(buffer, LARGE_BUFFER_MAX_SIZE, flagBuffer[i], flagBufferSize, status);
-        if (U_FAILURE(*status)) {
-            break;
-        }
+    if (buffer == NULL) {
+        *status = U_MEMORY_ALLOCATION_ERROR;
+        return;
     }
 
+    do {
+        if (allocateMoreSpace) {
+            allocateMoreSpace = FALSE;
+            currentBufferSize *= 2;
+            uprv_free(buffer);
+            buffer = uprv_malloc(sizeof(char) * currentBufferSize);
+            if (buffer == NULL) {
+                *status = U_MEMORY_ALLOCATION_ERROR;
+                return;
+            }
+        }
+        for (i = 0; i < numOfFlags; i++) {
+            if (T_FileStream_readLine(f, buffer, currentBufferSize) == NULL) {
+                *status = U_FILE_ACCESS_ERROR;
+                break;
+            }
+
+            if (uprv_strlen(buffer) == (currentBufferSize - 1) && buffer[currentBufferSize-2] != '\n') {
+                /* Allocate more space for buffer if it didnot read the entrire line */
+                allocateMoreSpace = TRUE;
+                T_FileStream_rewind(f);
+                break;
+            } else {
+
+                extractFlag(buffer, currentBufferSize, flagBuffer[i], flagBufferSize, status);
+                if (U_FAILURE(*status)) {
+                    break;
+                }
+            }
+        }
+    } while (allocateMoreSpace && U_SUCCESS(*status));
+
     T_FileStream_close(f);
 }