As part of a plea bargain deal with the court, Petty Officer Melson Bacos also described how the man's abduction and murder was later covered up by the marines.
Bacos and the seven Marines he accompanied on patrol were charged with abducting Hashim Ibrahim Awad from his home in April and then killing him.
They are also charged with placing a rifle, spent bullets and shovel next to his body to suggest he was trying to plant a roadside bomb.
Ten year sentence
Bacos was given a 10-year prison sentence for his role in the kidnap and murder.
However, under the terms of his plea bargain he will serve less than a year in prison. He was also given a dishonourable discharge from the military.
Bacos was the first to admit his role in the case and avoided murder charges as part of his plea-bargain deal.
The killing in the town of Hamdania was one in a series of incidents in which American soldiers have gone on trial for their conduct in Iraq.
Bacos told military judge Colonel Steven Folsom that squad leader Sergeant Lawrence Hutchins III had devised the plan to kill a different Iraqi who was "a known high-value individual whom he had detained who was later released from Abu Ghraib".
"He was just mad that they kept letting him go when he was a known terrorist, sir," Bacos said.
"He was detained and released three times, sir."
The squad did not find their intended target - whose name was Saleh Gowad - and instead seized Awad, who lived next door, Bacos said.
He said the squad also entered an Iraqi home to seize the AK-47 and shovel, then later fired the assault rifle to create a justification to return fire.
The medic said he eventually suggested letting Awad go.
"I knew that we were doing something wrong. I tried saying something sir," Bacos said.
Another soldier then told him: "Quit being a pussy," he testified.