Iraqi politicians have long demanded that the immunity offered to private security contractors be lifted.
“The Iraqis have been suffering because of this,” said Mahmud Othman, an MP who attended Tuesday’s closed-door negotiations.
About 100,000 private security contractors work in Iraq.
They are subject neither to the Iraqi legal system nor to US military tribunals, allowing them to operate virtually outside the law.
Immunity is a sensitive issue in Iraq after an incident in which security guards from the US company Blackwater shot dead 17 Iraqis in broad daylight in Baghdad last September.
Blackwater, one of the biggest private security contractors operating in Iraq,
says its guards reacted in self-defence.
The company provides security to US embassy officials in Iraq, including the ambassador Ryan Crocker.
Earlier this year the US state department renewed Blackwater’s license to work in Iraq despite opposition from Iraqi leaders including the prime minister Nouri al-Maliki.
George Bush, the US president and Maliki agreed in principle last November to sign a Status of Forces Agreement (SOFA) in Iraq by the end of July.
The US-Iraq security agreement aims to establish the rules for a continuing US troop presence in Iraq after the current UN mandate for foreign forces stationed in Iraq expires in December 2008.
The talks appeared to reach a deadlock last month amid strong opposition from Iraqi political factions including from some Shia leaders who denounced the proposed agreement as “eternal slavery” for the country.
There are also concerns about the number of military bases which Washington will maintain in Iraq.