The US administration threatened to block Iraq's access to its funds in the Federal Reserve Bank of New York if Baghdad expels American troops from the country, the Wall Street Journal reported.
The paper quoted unnamed Iraqi officials as saying that the US State Department warning came after the Iraqi parliament voted in favour of a resolution demanding the removal of American forces from Iraq following the assassination of Commander of Iran's Quds Force, Qassem Soleimani, in a US drone attack in Baghdad.
The move could harm Baghdad's already fragile economy, the paper added. Iraq uses the account to deposit its oil sale revenues and pay government salaries and contracts.
According to the most recent financial statement from the Central Bank of Iraq, the Federal Reserve held about $3 billion in overnight deposits at the end of 2018.
US President Donald Trump is reported to have also threatened to impose economic sanctions on Iraq after parliament asked Prime Minister Adil Abdul-Mahdi to remove nearly 5,300 American soldiers from Iraq.
Trump threatened that the US forces will not leave unless the Iraqi government paid for the air base America has built there. "We're not leaving unless they pay us back for it," Trump said.