Iraq shootout firm loses licence
The Iraqi interior ministry said the contractor, based in North Carolina, was now banned from operating in Iraq.
The Blackwater workers, who were contracted by the US state department, apparently opened fire after coming under attack in Baghdad on Sunday.
Thousands of private security guards are employed in lawless Iraq.
They are often heavily armed, but critics say some are not properly trained and are not accountable except to their employers.
The interior ministry's director of operations, Maj Gen Abdul Karim Khalaf, said authorities would prosecute any foreign contractors found to have used excessive force.
"We have opened a criminal investigation against the group who committed the crime," he told the Agence France-Presse news agency.
All Blackwater personnel have been told to leave Iraq immediately, with the exception of the men involved in the incident on Sunday.
They will have to remain the country and stand trial, the ministry said.
US investigation
The convoy carrying officials from the US state department came under attack at about 1230 local time on Sunday as it passed through Nisoor Square in the predominantly Sunni neighbourhood of Mansour.
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