The private security firm Blackwater Worldwide faced a humiliating ejection from Iraq yesterday after the Interior Ministry said its licence to operate would not be renewed.

The decision was taken because of a shootout in September 2007 when Blackwater guards were accused of killing 17 Iraqi civilians, a ministry spokesman said.

If implemented, the expulsion order would be a huge blow to the North Carolina-based company, which has the US State Department contract to protect the sprawling American Embassy in Baghdad and all American diplomats in Iraq.

It is unclear when the 1,000 Blackwater guards — who are made up largely of former US military personnel and has its headquarters in Baghdad’s green zone — will be asked to leave and whether they can continue to carry out their duties in the interim.

Major General Abdel Karim Khalaf, the Iraqi spokesman, said: “The contract is finished and will not be renewed by order of the Minister of the Interior . . . It is because of the shooting incident in 2007.”

An Iraqi investigation found that 17 civilians were killed and 20 wounded in the incident, when Blackwater guards opened fire with automatic weapons while escorting a US diplomatic convoy through Baghdad. The firm insists that its guards were acting in self-defence after being ambushed.

The US Embassy confirmed that it was looking for new security arrangements for its staff. “We are working with the Government of Iraq and our contractors to address the implications of this decision,” an official said.

A relative of two of the victims of the shootout at a busy Baghdad roundabout expressed scepticism that Blackwater would be forced to leave.

“This is a comedy,” Haitham alRubaie, a doctor whose wife and son were killed, said. He said that the firm had had its contract renewed in the past without requiring the permission of the Iraqi Government. Now, however, a US-Iraqi security accord approved in November gives Iraq the authority to decide which foreign security companies operate in the country.

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