The U.S. State Department said the private security firm Blackwater Worldwide could lose its license to protect U.S. diplomats in Iraq.
An inspector general's report obtained by news agencies said Blackwater faces "the real possibility" that Iraqi authorities, angered by violent incidents involving the firm's contractors, will not re-issue the license next year.
Media said the report cautioned that the administration of U.S. President-elect Barack Obama could be forced to make new security plans in Iraq. At present, Blackwater provides the bulk of security services for U.S. diplomats.
U.S. prosecutors have charged five Blackwater security guards with unlawfully killing 14 Iraqi civilians and wounding 20 others in a 2007 incident in Baghdad.
Blackwater said the guards came under fire as they were protecting a State Department convoy.
State Department officials have said they will decide whether to renew Blackwater's contract next year only after the FBI completes a probe into the incident.
The five defendants surrendered to federal authorities last week in the western U.S. state of Utah, where one of them lives. Defense lawyers said the men are innocent.
A sixth Blackwater guard has already pleaded guilty in the case.
Iraqi authorities said 17 Iraqis were killed in the September 2007 incident. U.S. officials said investigations into the other deaths are continuing.
The shootings caused strained relations between Baghdad and Washington and prompted Iraqi authorities to demand the right to prosecute U.S. security contractors. Iraq won that right in a security pact with the U.S. that will go into effect next month.
Some information for this report was provided by AP and Reuters.
