Ali al-Dabbagh, a government spokesman, announced the decision "to review the operations of foreign and local security companies in Iraq".
He said: "This came after the flagrant assault conducted by members of the American security company Blackwater against Iraqi citizens."
"Iraq is still under foreign occupation and Iraqis continue to die in great numbers"
Send us your views
In a notice sent to Americans in Iraq, the US embassy said it had acted to review the security of its personnel and possible increased threats to those leaving the Green Zone while accompanied by security details after the weekend killing of Iraqi civilians involving Blackwater guards.
"In light of a serious security incident involving a US embassy protective detail in the Mansour District of Baghdad, the embassy has suspended official US government civilian ground movements outside the International Zone [Green Zone] and throughout Iraq," the notice said.
"This suspension is in effect in order to assess mission security and procedures, as well as a possible increased threat to personnel travelling with security details outside the International Zone," said the notice.
No official notice
Blackwater said on Monday that it had received no official notice from Iraq's interior ministry.
The toll from the shooting rose to nine-10 civilians and one policeman - on Tuesday, according to a local hospital medic.
US officials in Baghdad have yet to clarify the legal status of foreign security contractors in Iraq, including whether they could be liable for prosecution by Iraqi authorities.
Riad Kahwaji, director of the Institute for Near East and Gulf Military analysis, told Al Jazeera: "Only the party that brought them [the private security firms] into Iraq can take them out of Iraq - and that is the US."
He said that under their contracts "neither Blackwater nor the other [private security] companies are obliged to obtain a licence from Iraq".
Kahwaji said: "The chances are they are going to stay. Because a lot of the foreign companies and contractors that are rebuilding Iraq rely totally on these Western, or US-based, security companies.
"They don't have any confidence in the Iraqi police and the Iraqi security services."
Condoleezza Rice, the US secretary of state, telephoned Nuri al-Maliki, Iraq's prime minister, on Monday to express regret over the death of innocent civilians.
US and Iraqi sources said the shooting erupted after a bomb exploded near a US diplomatic convoy, but a US government incident report said armed men fired on the convoy and Blackwater guards responded.
"Blackwater's independent contractors acted lawfully and appropriately in response to a hostile attack in Baghdad on Sunday," said a statement from the North Carolina company, reported by CNN on its website.
"Blackwater regrets any loss of life, but this convoy was violently attacked by armed insurgents, not civilians, and our people did their job to defend human life."
Nevertheless, Abdul Sattar Ghafour Bairaqdar, a judge from Iraq's highest court, the Supreme Judiciary Council, said Blackwater could face trial.
"This company is subject to Iraqi law and the crime committed was on Iraqi territory and the Iraqi judiciary is responsible for tackling the case," he said.
Muqtada al-Sadr, the Shia leader of the al-Mahdi Army militia, added his voice to anger over the incident, urged the government to "cancel this company's work, and the rest of the criminal and intelligence companies".
The Blackwater controversy provided the backdrop to more violence across the country.
Four car bombs in Baghdad on Tuesday killed 17 people and wounded 50 more, according to police.
The deadliest car bomb attack killed eight people and wounded 22 others near a market in the Ur neighbourhood, not far from the Shia-dominated district of Sadr City, police said.
Three other car bombs killed a total of nine people and wounded 28.
An explosion near a US security patrol killed three soldiers and wounded three others in Diyala province, north of Baghdad, the US military said on Tuesday.
Also on Tuesday, the top US commander in Iraq briefed British officials on the course of the war.
|Petraeus briefed the British PM |
at 10 Downing Street [AFP]
The visit to Britain by General David Petraeus and Ryan Crocker, the US ambassador to Iraq, came a week after their testimony to US congressmen.
Speaking before a meeting with Gordon Brown, the British prime minister, Petraeus praised British forces serving in Iraq, repeating his assessment of stability in Iraq in the wake of the "surge" of American forces.
He also offered support for Britain's plan to give Iraqi security forces control of Basra province later this year or earlier next year.
However, Petraeus warned against pulling out too early.
"There are no easy answers or quick solutions to helping the Iraqis build sustainable security and achieve national reconciliation," he said.
"Our assessments underscore the importance of recognising that a premature drawdown of our forces would likely have devastating consequences not only for Iraq and the region, but for our nations and the world."