The US civil administrator for Iraq on Friday ordered the dissolution of the Iraqi armed forces and several security bodies, sacking 400,000 staff who had formed the backbone of Saddam Hussein's rule.
Paul Bremer also dissolved the defence and information ministries and military and security courts, an administration statement said.
"These actions are part of a robust campaign to show the Iraqi people that the Saddam regime is gone, and will never return," the statement said.
It said a new Iraq army capable of defending the country would be formed instead.
"The Coalition Provisional Authority plans to create, in the near future, a new Iraqi corps. This is the first step in forming a national self-defence capability for a free Iraq," the statement said.
"Under civilian control, that Corps will be professional, non-political, militarily effective and representative of all Iraqis," it added.
The decision came after the United Nations Security Council granted the United States and Britain broad powers to run postwar Iraq and use its abundant oil resources to finance its reconstruction, when it voted to lift 13 years of international sanctions imposed on Iraq over its 1990 invasion of Kuwait.
The Iraqi army has in practice already been disbanded by the US-led war that toppled Saddam's government last month. The US administration has also banned the ruling Ba'ath Party and vowed to prevent the party's top officials from holding public office.
The order disbands both the elite Republican Guards and the regular army, suspends conscription, turns property of the dissolved entities over to the US-led administration and dismisses all employees of the dissolved entities.
Iraq's armed forces and state-funded paramilitary groups numbered around 400,000 on the eve of the US-led invasion.
The once-feared intelligence service employed thousands more, including members of special organs.
The statement said eligible military personnel and other employees of the dissolved entities, who were dismissed by the order, would be entitled to a termination payment of approximately one month's salary.
Retirees, war widows and others who were receiving pensions before the war will still receive them.
"These payments are subject to an important limitation," the statement said. "Those who are barred from public employment by the May 16 de-Ba'athification Order are not eligible to receive these payments.
"Military and other officers with the rank of colonel or above will be presumed to be in the barred classes, unless they prove otherwise."