Construction on the fence is expected to conclude in mid-2011. Security officials say they will remove checkpoints within Baghdad once the barrier is complete.
Wafiq al-Sammaraie, a former security adviser to Jalal Talabani, the Iraqi president, said the fence was necessitated by demographic rather than security concerns.
He told Al Jazeera the wall would prevent Sunni Arabs from entering Baghdad.
Security barriers have become a common part of the Iraqi landscape over the last few years. Concrete walls and checkpoints carved up the capital in 2006 and 2007, but failed to prevent dozens of fighters' attacks in heavily-guarded areas.
American forces built a massive concrete wallin 2008 to seal off Sadr City, the largely Shia neighbourhood in Baghdad dominated by Muqtada al-Sadr.
The Iraqi government has also been building a fence along the sparsely-populated Syrian border in a bid to cut off a popular crossing route for fighters.