The Jordanian haulage firm said it made the decision to pull out after captors paraded an employee in video footage aired on Arab television on Saturday.
The captive identified himself in the footage as Hisham Talib al-Izza.
The captors said they would kill al-Izza in 72 hours if the company did not cease operations in Iraq.
"I am halting all my business in Iraq to protect the lives of my staff," Starline director general Muhammad Samah al-Ajluni said.
He rejected accusations that his firm was working for the US military and stressed that its Iraq operations predated last year's US-led war and stretched back to 1996.
Meanwhile, a statement posted on a website warned that two Lebanese contractors held captive by an Iraqi group would be killed unless Beirut begins to bar its nationals from working for the US-led military in Iraq.
Many Lebanese contractors have
been taken captive in Iraq
"The Lebanese government cannot be unaware that its nationals - interpreters, contractors and others - are oppressing, torturing and harming the Iraqi people in general and the mujahidin in particular," said the statement attributed to al-Jaish al-Islami fi al-Iraq, the Islamic Army in Iraq.
"Among these expatriate personnel are the captives Marwan Ibrahim al-Kassar and Muhammad Jawdat Husain," the statement said.
"We demand that the Lebanese government withdraw all nationals working for the occupier in Iraq and warn them that they must bear the responsibility for the outcome if they refuse."
On Thursday, the Islamic Army in Iraq - Western Region Command paraded 10 new captives, including the two Lebanese, in video footage aired on Aljazeera.
The two Lebanese are employed by the electrical company al-Jbaili.
Earlier on Saturday, Husain's mother made an emotional appeal for his release.
"I am the mother of a practising Muslim family, so how can my son have been taken by Muslims like us?" she asked.
The Husain family has vowed
their son will not return to Iraq
"I beg you to show pity and compassion and we promise you that Muhammad will not go back to work in Iraq," Wadiha Husain said from her northern Lebanese hometown of Tripoli.
Husain's father said the captors had asked for his son's employers to quit Iraq, adding that his son had been taken captive while returning to Iraq from Jordan.
Another Lebanese captive, Imad Bassila, was released on Thursday after two weeks in captivity.
Six people are still being held captive or listed as missing in Iraq, according to the Lebanese foreign ministry.
About 20 Lebanese nationals have been abducted in Iraq and then released, often after payment of a ransom.
One has been executed by his captors.