Police on Wednesday said Steven Vincent was shot several times after he and his Iraqi translator were abducted at gunpoint hours earlier.
"I can confirm to you that officials in Basra have recovered the body of journalist Steven Vincent," said embassy spokesman Pete Mitchell.
"The US embassy is working with British military and local Iraqi officials in Basra to determine who is responsible for the death of this journalist. Our condolences go out to the family."
The embassy did not give the cause of death.
However, Iraqi police in Basra said Vincent was abducted along with his female translator at gunpoint on Tuesday evening. The translator, Nour Weidi, was seriously wounded.
Vincent and the translator were taken by five men in a police car as they left a currency exchange shop, police Lieutenant Colonel Karim al-Zaidi said.
Vincent's body was found on the side of the highway south of Basra later. He had been shot in the head and multiple times on his body, al-Zaidi said.
Police said Vincent, a writer who had been living in New York, had been staying in Basra for several months working on a book.
The author published a book on
life in post-Saddam Iraq
In an article published on 31 July in The New York Times, Vincent wrote that Basra's police force had been heavily infiltrated by members of Shia political groups, including those loyal to cleric Muqtada al-Sadr.
Vincent quoted an unidentified Iraqi police lieutenant as saying that some police were behind many of the assassinations of former Baath Party members that had taken place in Basra.
"He told me that there is even a sort of 'death car': a white Toyota Mark II that glides through the city streets, carrying off-duty police officers in the pay of extremist religious groups to their next assignment," he wrote.
UK army criticised
Vincent was also critical of the British military, which is responsible for security in Basra, for turning a blind eye to abuses of power by Shia extremists in the city.
He was the author of In the Red Zone: A Journey into the Soul of Iraq, a recently published book that was an account of life in a post-Saddam Iraq.
Vincent's website describes him as a freelance investigative journalist and art critic whose work had appeared in major newspapers and magazines including the Wall Street Journal, Harper's and the Christian Science Monitor. He had been working on a book about the history of Basra.
According to the New York-based Committee to Protect Journalists, as of 28 June, 45 journalists and 20 media support workers have been killed while covering the war in Iraq since March 2003.