On Wednesday, Ali al-Dabbagh, an Iraqi government spokesman, released a statement saying: "The cabinet held a meeting yesterday and decided to scrap the article pertaining to security companies operating in Iraq that was issued by the CPA (Coalition Provision Authority) in 2004."

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"The actions of these contractors will ultimately reflect on coalition forces in general"

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"It has decided to present a new law regarding this issue which will be taken in the next cabinet meeting."

The CPA stipulated that the "multinational force, foreign liaison missions, their personnel, property, funds and assets and all international consultants shall be immune from Iraqi legal process.".

On October 9 guards of Australian security company Unity Resources Group fired upon a car in central Baghdad killing two women, and on October 18 guards of a British security company fired on a car wounding three people.

US move

On Tuesday, the US government also moved to clamp down on Blackwater and other private security firms in Iraq and Afghanistan.

Officials said that Condoleezza Rice, the US secretary of state, was adopting "immediately" the recommendations of a review panel that exposed a worrying legal impunity for security guards working in the two countries.

The panel was led by Patrick Kennedy, the state department's director of management policy, who said "the issue is to do the job in such a way that you minimise the risk to protectees and to any innocent Iraqis who happen to be in the area that a convoy is moving through".

In an implicit admonishment, the Kennedy panel stressed that private contractors should open fire only with "due regard for the safety of innocent bystanders".

The Blackwater shooting laid bare a lack of accountability for firms working for the US state department rather than the Pentagon, whose private contractors are covered by US military law.

Washington has been increasingly dependent on contractors to protect its civilian staff in Iraq as the military has been fully occupied tackling Sunni fighters and sectarian militias.