This decision follows Washington's insistence six months ago.
The world body's largest humanitarian programme was launched in 1996 to sell Iraqi oil and use the proceeds to buy food, medicine and other civilian goods, to offset the impact on ordinary Iraqis of UN sanctions imposed on Baghdad after its 1990 invasion of Kuwait.
But the latest move by the UN to hand over control of the programme has not been welcomed by an international activist organisation, founded by former US attorney-general Ramsey Clark, and critical of US foreign policy and its occupation of Iraq.
"We think it is outrageous", says Richard Becker, Regional Director of the International Action Centre (IAC), based in San Francisco. "This move, is in fact, delivering all resources into the hands of those illegally occupying Iraq."
Becker said that "for resources, that belong to the Iraqi people to be blatantly delivered into the hands of illegal occupiers, can only emphasise why occupation must end".
Between December 1996 and the mid-March US-led invasion of Iraq, the programme, exported $65 billion of Iraqi oil and purchased $48 billion of commercial goods for the civilian population, said Benon Sevan, head of the UN Iraq programme.
The rest of the money went to pay for UN weapons inspections, reparations dating from the first Gulf War and administrative costs.
Becker, however, describes the programme as "a poor substitute for what should have brought restoration to the Iraqi people".
He says the programme deprived the Iraqi nation of sovereignty.
Over half a million Iraqi children
died as a direct result of sanctions
"None of the receipt of sale of Iraqi oil throughout the programme ever went to Iraq," says Becker. Instead, "it was delivered to a UN account".
In 1999, Dennis Halliday, the high-profile UN coordinator of the programme, resigned from his post, saying he could no longer administer "an immoral and illegal" policy.
Halliday, who was nominated for the 2001 Nobel Peace Prize, reportedly said in an interview that "the Oil-for-Food programme is something that the UN should be ashamed of. It is a continuation of the genocide that the economic embargo has placed on Iraq."
Halliday said children were dying of malnutrition and water-borne diseases. The US and UK bombed the infrastructure in 1991, destroying power, water and sewage systems against the Geneva Convention. It was a great crime against Iraq, he stressed.
He went on to say that "… there is a sense that the UN humiliated the Iraqi people and society. I would use the term genocide to define the use of sanctions against Iraq... Can you imagine the bitterness from all of this?"
Hans von Sponeck, a former assistant secretary general and the senior UN official in Iraq who replaced Halliday, also resigned in protest of the UN role in 2000, along with the head of the World Food Programme.
A 1999 Unicef report calculated that more than half a million children had died as a direct result of sanctions.