Iraq's Interior Ministry has withdrawn the license of the U.S. security company under investigation for the fatal shooting of civilians in the capital on Sunday.
A ministry spokesman on Monday said Blackwater USA is prohibited from operating anywhere in Iraq. The company provides security for many U.S. civilian operations in the country.
Violence erupted Sunday when a U.S. diplomatic convoy being escorted by the contractors came under attack in western Baghdad.
Iraqi officials say eight civilians were killed and 11 others were wounded by the gunfire. They add that the security contractors allegedly involved in the incident will be referred to Iraqi authorities.
Both U.S. and Iraqi authorities are investigating the incident.
The U.S. State Department says Secretary of State Condoleezza Rice plans to call Iraq's prime minister to express regret for the loss of life.
Iraqi officials say the security contractors fired randomly. Prime Minister Nouri al-Maliki called the shooting a crime.
In other developments, the U.S. military says coalition forces captured a senior Iraqi terrorist and 11 others with suspected links to the al-Quds Force of Iran's Revolutionary Guards Corps. The military says the 12 are suspected of smuggling and storing Iranian weapons to use in attacks on Iraqi civilians.
Also on Monday, coalition forces killed seven suspected terrorists and captured 31 others in raids targeting the networks of al-Qaida in Iraq.