Foreign Minister Saud al-Faisal made the announcement on Wednesday after US special envoy for Iraq's debt James Baker held talks with the crown prince.
The debt is estimated at $28 billion.
Crown Prince Abd Allah bin Abd al-Aziz told Washington's envoy that Riyadh was ready to "enter into negotiations with other principal Iraqi creditors to substantially reduce the Iraqi debt," Saud said.
"The results of these negotiations would have to be endorsed by the internationally recognised Iraqi government, hopefully in 2004," he said, according to a foreign ministry statement.
"What constitutes 'substantial debt reduction' is subject to agreement among the creditors," Prince Saud added.
Baker held talks with the crown prince after arriving in Riyadh on the fourth and last leg of a Gulf tour aimed at easing Iraq's huge debt.
Baker arrived in the kingdom after securing promises from Qatar and the United Arab Emirates to write off most, or at least a substantial part, of the debt owed by Iraq to each of the three oil-rich Gulf Arab states.
Iraq's overall debt is estimated at around $120 billion.
Baker (L) with UAE prince Shaikh
Khalifa bin Zayid
Earlier, Kuwait also told the US special envoy that it was willing to begin talks over reducing debts owed by Baghdad but the issue would need parliament's approval.
Prime Minister Shaikh Sabah al-Ahmad al-Sabah was quoted by state news agency KUNA as telling Baker that Kuwait will work with other countries to achieve a substantial reduction in Iraqi debts during this year "on condition that this is approved by constitutional institutions in the country."
Shaikh Sabah was quoted as saying that the issue of Iraqi
debts was separate from that of billions of dollars in war
reparations for damage Kuwait suffered during Iraq's 1990
In September, Kuwaiti parliamentarians reacted angrily to a US suggestion that Kuwait drop reparations demands.
US administrator for Iraq Paul Bremer said then that out of Iraq's total debt, Baghdad owned $98 billion in reparations to Kuwait and Saudi Arabia for losses during the occupation and the Gulf War.
"There is no meaning in discussing the rescheduling, reducing or waiving of the debt with a provisional government that enjoys no sovereignty. We must wait for the transfer of power to Iraqis to be completed"
Kuwait had also granted an estimated $16 billion to Iraq during the 1980-88 Iraq-Iran war.
Kuwaiti lawmakers are opposed to any waiver of the compensation claims and have warned the government against taking a unilateral decision to that effect.
A number of MPs have even put forward a proposal to specifically prohibit the government from waiving any compensation claims although it has not yet been debated in parliament.
Kuwait has filed claims worth $170 billion to the UN Compensation Commission, which has already approved some $37 billion in payments and actually paid about $9 billion.
The UAE announced on Tuesday that it would write off the bulk of some $4 billion owed by Iraq.
A Qatari foreign ministry spokesman also said his country would write off most of the debt owed by Iraq but officials did not disclose the amount owed.
Liberal Kuwaiti columnist Ahmad al-Dayeen urged the government to delay a decision on slashing Iraqi debt until an independent government was formed in Baghdad.
"There is no meaning in discussing the rescheduling, reducing or waiving of the debt with a provisional government that enjoys no sovereignty. We must wait for the transfer of power to Iraqis to be completed," Dayeen wrote in al-Rai al-Aam daily.
But analysts say that it will be difficult for Kuwait, which was liberated by US troops and which played a major role in the US-led invasion of Iraq, to reject a key demand from Washington.