Brigadier Abdul-Kareem Khalaf, the Iraqi Interior ministry spokesman, said the trenches would be dug in the coming weeks to protect the Iraqi capital.
The plan is an attempt to reverse what so far has widely been seen as a losing battle to prevent suicide car bombs and other weapons from being smuggled into the capital of six million people.
Khalaf provided no details of what distance the trenches would cover, nor how deep or wide they would be. The city's perimeter measures around 100 kilometres.
However the US military said the plan had been exaggerated and would mostly use existing terrain features.
Lieutenant Colonel Barry Johnson said: "No doubt there will be some trenches involved in this, but to say there is going to be a moat around the city is a bit of a stretch."
In Washington, George Bush, the US president, confirmed there were plans to build a berm around the city to "make it harder for people to come in with explosive devices".
Khalaf said the trench would restrict vehicle and pedestrian traffic to just 28 entry points, all with guarded checkpoints.
Similar checkpoints are already set up on some central routes through Baghdad, including the highway to the airport, but need hundreds of soldiers to man them.
"We will leave only 28 inlets to Baghdad while all other inlets will be blocked. Supports will be added to the trenches to hinder the movements of people and vehicles. The trenches will be under our watch," Khalaf said.
Vehicle bombs have killed at least 960 Iraqis and wounded 2,763 in Baghdad this year, according to an AP count.
"We will leave only 28 inlets to Baghdad while all other inlets will be blocked"
Brigadier Abdul-Kareem Khalaf, the Interior ministry spokesman
Most of the car bombs are thought to be assembled in areas just south of Baghdad, in the so-called Triangle of Death.
There have been past operations seeking to prevent bombs from being smuggled into the capital.
The first such plan, Operation Lightning, was launched in May 2005 that included more than 40,000 Iraqi police and soldiers, backed by US troops and air support. But they failed to cut down on bombings.
A year later, as killings in Baghdad surged, a joint US-Iraqi security offensive known as Operation Together Forward was launched on June 15.
It also made little headway, with the city's death toll surpassing 1,500 in July and triggering fears among US commanders that civil war could break out.
Iraqi security forces have recovered at least 35 more bodies in 24 hours from around the country, a government spokesman said on Saturday.
Interior ministry spokesman Brigadier General Abdel Karim Khalaf said, "Thirty of those killed appear to be criminal murders and five were assassinations."
In the previous four days, security forces have recovered nearly 150 bodies, most of them from Baghdad - victims of the conflict between the newly empowered Shiite majority and the ousted Sunni Arab elite that has left thousands dead since February.