Iraqi officials said on Tuesday the Americans were first tortured, then killed in a "barbaric" way, and an al-Qaeda-linked anti-government group claimed its new leader did the killings himself.
The bodies of the two soldiers were spotted by multinational forces late on Monday but could not be recovered until an explosives team cleared the area after a tip from an Iraqi civilian, who warned them to be alert for explosive devices, the military said.
"Coalition forces had to carefully manoeuvre their way through numerous improvised explosive devices leading up to and around the site," the military said in a statement. "Insurgents attempting to inflict additional casualties had placed IEDs around the bodies."
US Major-General William Caldwell, a spokesman for US forces in Baghdad, said the remains were believed to be those of Private First Class Kristian Menchaca, 23, of Houston, and Private First Class Thomas L Tucker, 25, of Madras, Oregon.
DNA tests would be done in the US to confirm the identities.
Al-Qaeda leader killed
Just hours before the two soldiers went missing on Friday, a US air strike killed a key al-Qaeda in Iraq leader described as the group's "religious emir", Caldwell said.
Mansour Suleiman Mansour Khalifi al-Mashhadani, or Sheikh Mansour, was killed with two foreign fighters in the same area where the soldiers' bodies were found, the US spokesman said. The three were trying to flee in a vehicle.
Al-Mashhadani, identified as an Iraqi in his late 30s, was "a key leader of al-Qaeda in Iraq, with excellent religious, military and leadership credentials" and tied to the senior leadership, including Abu Musab al-Zarqawi and his alleged replacement, Caldwell said.
Tucker, 25, was found dead along
with Menchaca near Yusufiya
US forces captured Mansour in July 2004 because of his ties to the anti-government groups Ansar al-Islam and Ansar al-Sunna, but the military let him go because he was not deemed an important terror figure at the time.
On Tuesday, the US military statement said the remains of Menchaca and Tucker will be flown from Kuwait to Dover Air Force Base for positive identification and those results will be shared with their families.
The discovery of the remains followed a massive search effort by some 8,000 Iraqi and US soldiers after the two men went missing on Friday near the town of Yusufiya in the Sunni Triangle south of Baghdad.
Caldwell said one US soldier had died and 12 were wounded during the search effort, while two fighters had been killed and 78 were detained as multinational forces received 66 tips, 18 that were considered worthy of follow up.
Earlier, the director of the Iraqi defence ministry's operation room, Major-General Abdul-Aziz Mohammed, said the bodies showed signs of having been tortured. "With great regret, they were killed in a barbaric way," he said.
The claim of responsibility was made in the name of the Mujahidin Shura Council, an umbrella organisation of five anti-government groups led by al-Qaeda in Iraq. The group posted an internet statement on Monday claiming it was holding the American soldiers captive.
Caldwell said that in addition to the two soldiers, a dozen Americans - including Sergeant Keith M Maupin and 11 private citizens - are missing in Iraq.