The US-installed body issued a statement on Wednesday distancing it from a key part of a sweeping economic package presented by interim Finance Minister Kamil al-Kilani at the International Monetary Fund meeting in Dubai on Sunday.
The text insisted only the council president could announce policy "and the statements attributed to the (finance) minister about the law of investment cannot be considered official."
Kilani's announcement that Iraq would be open to total foreign ownership in all sectors except oil created headlines and sparked criticism in Iraqi business circles.
But the council statement said the version presented in Dubai "was not precise" and ignored restrictions adopted by the council concerning the use of manpower and the organisation of the private sector in Iraq.
"After studying the statements attributed to the finance minister and the reaction," the council decided to empanel a committee of experts to review the investment question and its impact, the statement said.
It promised to come up with a "precise, scientific version that will guarantee the rights of the Iraqi people and serve the high interests of the country."
"The measures which have been announced will lead to foreign domination over economic decision-making"
financial expert and academic
The reforms unveiled by Kilani were announced in a statement released by the US delegation to the IMF-World Bank meeting. It said the reforms would "significantly advance efforts to build a free and open market economy in Iraq."
Under the plan, foreign firms would have been able to buy Iraqi firms outright, forge joint ventures and open branches. Total foreign ownership would have been allowed "in all sectors except natural resources."
Foreign banks would have got the green light to enter Iraq, with a total of six foreign banks allowed to buy up to 100% of local banks within the next five years.
The package announced in Dubai caused an immediate storm in Iraq, where businessmen and analysts expressed fears that outsiders could swallow up the national economy.
"The measures which have been announced will lead to foreign domination over economic decision-making and largely sign away the independence" of Iraq, said Ridha al-Qureishi, a financial and monetary expert and academic.
The new confusion over the US-installed administration's economic policy came as it was seeking to assert itself on the international as well as domestic front.
Kilani and other economic officials were at the IMF, Oil Minister Ibrahim Bahr al-Ulum was attending OPEC talks in Vienna and council president Ahmad Chalabi was in New York for a key UN debate on Iraq's future.