The laser system has passed several successful tests after a decade of development, prompting the lead contractor to suggest the weapon could be used in Baghdad's Green Zone to protect it from mortar attack.
However, the project's manager said on Monday that Congressional budget cuts meant the weapon's future was uncertain.
Lieutenant-Colonel Jeff Souder, who oversees the directed energy applications at the Redstone Arsenal in Alabama, told an MIT-linked science website that the billions of dollars that had already been spent on research had not guaranteed its future.
The Mobile Tactical High Energy Laser (MTHEL) was meant to be a defensive laser weapon powered by the combustion of highly volatile chemicals that shoots down artillery projectiles.
The system works by using radar to track an incoming object, which signals a controller to fire the weapon when the incoming shell was at its apogee, rendering any projectile harmless to troops below.
The laser is powered by toxic chemicals like deuterium and nitrogen triflouride.
Originally called the Nautilus, it was conceived in 1994 as a chemical laser test bed to determine if shooting down artillery rockets was feasible.
Since then the laser has shot down at least 47 test targets, some in salvos, including rockets, mortars, shells and even a helicopter.
Loss of interest
But despite dozens of successful tests, the army started to lose interest in the chemical laser after 9/11 - according to MTHEL's lead contractor Northrop Grumman.
The company claims the US army is now switching its interests instead towards next-generation lasers that promise more mobility and lower cost than the bulky chemical laser of MTHEL.
And other potential backers that showed interest, such as Israel, have also lost interest in the project since it withdrew its occupation forces from Lebanon in 2000.
The laser system may help stop
fatal mortar attacks on US forces
Yiftah Shapir, an associate at the Jaffee Centre for Strategic Studies of Tel Aviv University, said Israel "didn't want to spend $3000 on chemicals for every shot at a mortar shell which isn't capable of doing that much damage even if it landed right on a house".
However, Northrop Grumman reports that it is in new discussions with the Pentagon that may see the laser prototype resurrected for use in Iraq's Green Zone. An answer is expected within two months.
The attraction for defence officials, according to Northrop, is that mortar and rocket attacks are the fourth-leading cause of casualties amongst US forces in Iraq - behind improvised explosive devices (IEDs), bomb attacks and gun battles.
Northrop's vice-president Art Stephenson says alternative non-chemical laser systems have serious shortcomings. Nobody, it seems, has yet figured out how to make them powerful enough to shoot down artillery projectiles.
In order to ignite a target, Stephenson says, a laser must produce at least 100 kilowatts of power. So far, only one fourth of that power has been reached in the laboratory.
"We've been hearing for years that 100 killowatts is only a year away. But scaling up that far is a much harder engineering problem than anybody recognised."
But Stephenson claimed the US army might still have the chemical laser system in Iraq by the end of the summer.