External relations commissioner Chris Patten branded the policy as "gratuitous and extremely unhelpful" in a press release on Thursday.
"Returning to old arguments and divisions doesn't seem particularly constructive. We should be seeking to bring people together not divide them."
But Washington has side-stepped criticism concerning its plans to limit competition for 26 Iraqi reconstruction contracts worth up to $18.6 billion.
The White House spokesman said that as the projects were financed with US taxpayers' money it was "appropriate" countries that did not support the war should not benefit.
Spokesman Scott McClellan said President George Bush was "well aware of the decision, fully supportive of the decision".
France, Germany, Canada and Russia blasted the US decision on Wednesday, privately suggesting it was up to the Iraqis to decide who was awarded contracts after a fair and transparent bidding process.
The move could also complicate a US effort to gain an international consensus for relieving Iraq's $125 billion in foreign debt.
The European Commission said it was investigating whether the ruling violated global trade rules.
"Returning to old arguments and divisions doesn't seem particularly constructive. We should be seeking to bring people together not divide them"
The decision was announced on Tuesday in a notice written by deputy Defence Secretary Paul Wolfowitz, a noted administration hawk.
He said it was necessary to limit competition for the prime Iraq contracts "for the protection of the essential security interests of the United States."
"The United States and coalition countries… are the ones that have been helping and sacrificing to build a free and prosperous nation for the Iraqi people. And I think it's totally appropriate for those US taxpayer dollars to go to the entities I just mentioned," McClellan said.
Companies likely to benefit most from the decision come from Britain, Japan, Italy, the Netherlands, Australia, South Korea and Poland.
Other supporters of the war effort include Albania, Bulgaria, Denmark, Honduras, Hungary, Kazakhstan and the Philippines.
The contracts cover electricity, communications, public buildings, transportation, public works and security and justice.