The announcement is a setback for the embattled exporter, which had been tendering for a million tonnes of wheat in competition with US growers.
The Iraq tender was seen by Australian industry analysts as providing the first indication of whether AWB's international export programme would be affected by allegations that it paid kickbacks under the now-defunct Iraqi oil-for-food programme.
A UN report last year accused AWB, the main exporter of food to Iraq in the 1990s, of paying up to US$222 million to Saddam Hussein's government under the programme.
An Australian government-appointed inquiry under Terence Cole, a Supreme Court judge, is now looking into whether AWB broke Australian laws in its oil-for-food deals with Iraq.
Andrew Lindberg, managing director of AWB, under intense questioning at the inquiry, acknowledged on 19 January that AWB had deceived the UN by not disclosing service fees and other charges in wheat contract information.
The UN oil-for-food programme allowed Iraq to export limited amounts of oil, as an exception to trade sanctions, to pay for imports of food and humanitarian supplies.
Australia was the biggest wheat exporter to Iraq under this scheme, with the United States excluded from the trade by Baghdad until Saddam was toppled by US-led invasion forces in 2003.
The AWB, which announced the suspension in a statement to the Australian Stock Exchange on Monday, said it was determined to rebuild its reputation with customers, growers and shareholders.
It pointed out that at a board meeting last week it acted swiftly to ensure the continuation of strong management after the resignation of Lindberg. It appointed Brendan Stewart, a wheat grower, as executive chairman and Peter Polson, AWB director, as acting chief executive.
The AWB also reiterated that it had initiated reviews of its corporate governance and marketing activities by independent auditing and accounting firms.