The billion dollars were earmarked for weapons purchases, the country's top anti-corruption official said.
Judge Radhi Hamza al-Radhi, the Iraqi commissioner on public integrity, said on Tuesday: "We have issued arrest warrants for 23 top-ranking Defence Ministry officials including the former minister."
Finance Minister Ali Allawi claimed last month that $1 billion had been plundered from Defence Ministry coffers during the US-backed government of former prime minister Iyad Allawi.
Investigators believe the money was siphoned abroad in cash and used to fund purchases of shoddy and outdated military equipment, dealings which the finance minister told a British newspaper had seriously curtailed efforts to put an end to fighting in Iraq.
Rejecting the charges, al-Shaalan told Aljazeera on Tuesday that pro-Iranian factions in Baghdad were behind the accusations.
''There are some parties within the government alliance that want to drag me, Hazem al-Shaalan, into the political fray though I have nothing to do at all with this matter ... because I have criticised Iran", he said.
Al-Shaalan has described the
government's claims as 'lies'
''Iran nowadays is involved in all the organs of the Iraqi state, including the security and popular entities to the official government institutions. I defy every one of them to produce, from an impartial stand, a single document against me.
''I am not in a position to engage in wrangling with them. I will make everybody aware of the violations committed by those groups who have shrouded themselves in the glitter of democracy," he said.
Nevertheless, al-Radhi said the Iraqi authorities were working with international police to seek the arrest of many of the wanted suspects believed to be abroad.
"If they are outside Iraq, it should be Interpol who brings them back," he said, adding that al-Radhi denied his anti-corruption campaign was politically motivated, saying investigations were also on-going into the current Shia-dominated government which replaced Allawi's administration after January's landmark elections.
He said investigations were also under way into activities of the labour, housing, transport and oil ministries.
Finance minister Allawi has said that $500 million-$600 million has allegedly disappeared from various ministries.
"There are so many cases we have in so many ministries," al-Radhi said. "We are not political; we are technocrats and our role is to chase the corruption and bring the guilty to justice."
Iyad Allawi, who headed an interim US-approved government which took office after the US-led invasion, heads the Iraqi List which has 40 seats in the new parliament.
He has said he plans to form a broad-based secular coalition to fight the next elections due to take place in December after the national referendum on Saturday on the country's new constitution.
Al-Shaalan (L) first faced the
accusations while still in office
The accusations against al-Shaalan were first made at the beginning of the year while he was still defence minister.
At the time Ahmad Chalabi, the former Washington favourite, claimed that $300 million had been removed clandestinely from Iraq's central bank and flown to Lebanon.
In response, the Iraqi Defence Ministry said it had been a legitimate cash transfer to buy armaments; and Shaalan threatened to have Chalabi arrested over his alleged involvement in a financial scandal in Jordan during the 1990s.
Chalabi is deputy prime minister in the Shia-dominated Ibrahim al-Jaafari government, and Shaalan is out of office. According to Britain's The Sunday Times, Shaalan has hired Dean & Dean, a firm of London lawyers, to defend him against his accusers in a legal action in the high court.