The Iraqi interior ministry has cancelled the operating license of a US security firm after it was involved in a shootout that killed eight people, a senior official said.

Abdul-Karim Khalaf, a ministry spokesman, said 13 people were wounded when Blackwater USA staff opened fire in a Baghdad incident involving an attack on a US motorcade.

"The interior minister has issued an order to cancel Blackwater's license and the company is prohibited from operating anywhere in Iraq," Khalaf said on Monday.

"We have opened a criminal investigation against the group who committed the crime."

The spokesman said witness reports pointed to Blackwater's involvement but said the incident, in a predominantly Sunni area of western Baghdad on Sunday, was still under investigation.

US troops are immune from prosecution in Iraq under the UN resolution that authorizes their presence, but Khalaf said the exemption did not apply to private security companies.

'Unaccountable' operatives

But Robert Young Pelton, the author of License to Kill who lived with Blackwater operatives in Iraq, told Al Jazeera that the security contractor was effectively accountable to no one.

"There is ongoing debate in America as to what they should subject to, whether it is military law, local Iraqi law or even UN law, no one has quite decided," he said.

"If you ask the industry they say they are subject to many laws, but in the case of a shooting on Christmas Day when Blackwater employees shot the vice-president's bodyguard there have been no charges filed."

Blackwater, based in North Carolina, provides security for many US civilian operations in the country.

The company was not immediately available for comment.

The US embassy in Baghdad said a state department motorcade came under small-arms fire that disabled one of the vehicles, which had to be towed from the scene near Nisoor Square in the Mansour district.

Shooting investigated

A state department official said the shooting was being investigated by the department's diplomatic security service and officials working with the Iraqi government and the US military.

Late on Sunday, Nuri al-Maliki, the Iraqi prime minister, condemned the shooting by a "foreign security company" and called it a "crime".

Tens of thousands of private security contractors operate in Iraq - some using automatic weapons and body armor, helicopters and bulletproof vehicles.

They also protect journalists, visiting foreign officials and thousands of construction projects.

Blackwater has an estimated 1,000 employees in Iraq, and at least $800m in government contracts.

It is one of the most high-profile security firms in Iraq.

The secretive company is based at a massive complex in North Carolina.

Until the September 11 attacks, it had few security contracts, but since then, Blackwater profits have soared.

It has become the focus of numerous contractor controversies in Iraq, including the May 30 shooting of an Iraqi believed to be driving too close to a Blackwater security detail.

Witness testimony

Iraqi police said the contractors were in a convoy of six four-wheel-drive vehicles and left the scene after the shooting.

Hassan Jabar Salman was hit by five bullets while trying to flee the scene of the incident in his car, he told the AFP news agency while recovering in Baghdad's Al-Yarmouk hospital.

Salman said he heard an explosion near Al-Nisoor Square and saw the convoy two cars ahead of him.

"The foreigners in the convoy started shouting and signaling us to go back.

"I turned around and must have driven 100 feet [30 metres] when they started shooting.

"There were eight of them in four utility vehicles and all shooting with heavy machine guns," he said as he lay wrapped in bloodied bandages on the hospital bed.

"My car was hit with 12 bullets, of which four hit me in the back and one in the arm."

PHOTO CAPTION

Blackwater security personnel on board a helicopter in Baghdad (2005)