Iraq's Governing Council said on Tuesday the stations were prohibited from covering official activities in Iraq for two weeks.
It said the action was taken as a warning to broadcasters who incite anti-US violence.
"Al-Jazeera and al-Arabiya will temporarily be excluded from any coverage of Governing Council activities or official press conferences, and correspondents of the two channels will not be allowed to enter ministries or government offices for two weeks," the council said in a statement.
US officials have accused Qatar-based Aljazeera and Dubai-based al-Arabiya of giving too much prominence to anti-US attacks and providing a forum for backers of ousted President Saddam Hussein.
Both channels, which are competitors for the Arab world audience, strenuously deny charges of bias.
Aljazeera spokesman Jihad Ballout said the station regretted the decision, but "will continue our work as usual until we are officially notified".
Al-Arabiya officials have yet to react in detail.
However, Rohan Jayasekera, of London-based Index on Censorship, said the bans were "blatantly unfair".
"The Americans and the British have had previous experience in Bosnia and Kosovo of the difficult balancing act between encouraging democracy and an independent media and preventing incitement to violence.
"They managed it quite well there but have failed in Iraq. At the moment, the Governing Council is basically told what to do by the Americans. But if they are going to ban media outlets then the complaints have to be addressed fairly and there has to be a right of reply."
And British MP and Iraq expert George Galloway said the council decision was an indictment of the way the American-led forces were running the country.
"This puts a nail in the coffin of the big lie that the West was going into Iraq to liberate the country in the name of freedom and democracy and to rid it of the yoke of dictatorship"
"This puts a nail in the coffin of the big lie that the West was going into Iraq to liberate the country in the name of freedom and democracy and to rid it of the yoke of dictatorship," he said.
"Aljazeera and al-Arabiya have the right to report news. They cater to their audience and will obviously favouritise stories their audience is interested in.
"Other media organisations should protest vociferously against this decision because today it is Aljazeera and al-Arabiya but tomorrow it could be them."
Galloway also denied the Americans had a right to act against media outlets to prevent attacks on their troops.
"The Iraqi resistance have a legitimate right to defend their country. After all, they didn't ask the Americans to invade Iraq with all guns blazing.
"And in any case, the Iraqi resistance is working underground and has no access to electricity, let alone TV. The idea that they are waiting for Aljazeera and al-Arabiya to give them the nod before they do anything borders on the ridiculous."
And he predicted the censorship would ultimately backfire on the occupation forces.
"The British Prime Minister banned the Irish Republican Army in the 1980s and tried to deny them access to all media. But all that achieved was to reduce the government to the level of the IRA and to make them a laughing stock," he said.