The statement on Monday was the first announcement of the possibility of a discovery of chemical weapons, which Washington claimed last year was one of the reasons for invading Iraq.
Occupation military spokesman Brigadier-General Mark Kimmitt told a news conference on Monday the substance had been found in an artillery shell inside a bag discovered by a US convoy a few days ago. The round had exploded, causing a small release of the substance, he said.
"The Iraq Survey Group has confirmed today that a 155 (mm) artillery round containing sarin nerve agent had been found. The round had been rigged as an IED (improvised explosive device) that was discovered by a US force convoy," he said.
"A detonation occurred before the IED could be rendered inoperable," Kimmitt said, adding that two members of an
explosives team had been treated for exposure to the substance.
However, field testing for chemical weapons is thought to be unreliable and only an initial indicator.
"I've seen intelligence on the matter you've raised. What you cited, I believe, was a field test, which is not perfect," said Defense Secretary Donald Rumsfeld, responding to questions after a speech on Monday to the Heritage Foundation.
"What we ought to do is to get the samples someplace where they can be tested very carefully before coming to a conclusion as to precisely what it was."
Rumsfeld indicated the tests could take some time.
'Stocked from the ex-regime'
Kimmitt said the round, designed to mix the sarin in flight, belonged to a class of ordnance that the ousted government of Saddam Hussein claimed to have destroyed before the 1991 Gulf war.
"It is a weapon that we believe was stocked from the ex-regime time, and it had been thought to be an ordinary artillery shell set up to explode like an ordinary IED... when it exploded it indicated that it actually had some sarin in it," he said.
IEDs are homemade bombs usually planted at the side of the road rigged to explode as coalition vehicles pass.
The United States launched its invasion of Iraq last year, accusing then-president Saddam Hussein of developing chemical, biological and possibly nuclear weapons.
David Kay, former head of the Iraq Survey Group searching for Iraq's alleged WMD, resigned in January saying that large-scale production of chemical or biological weapons did not exist after the 1991 Gulf War.
The failure to find such weapons has given rise to criticism in the United States and Britain, Washington's closest ally in the war, that pre-war intelligence was flawed and may have been distorted.