The Asian Champions lost 1-0 last week to Qatar, a defeat that meant it was unable to progress to the final stage of qualification.
"It is really sad that Iraq lost in the 2010 FIFA World Cup qualifiers," said a statement from the IFA.
"Iraqis are not happy with the results."
"The Iraqi FA has decided to disband the team as of now and also not continue with the services of Adnan Hamad as coach. The team will not participate in the West Asian Football Federation Championship."
"We will concentrate on rebuilding the team and the Gulf Cup in 2009 as well as the FIFA Confederations Cup."
"We are thankful to Adnan Hamad for his efforts and tremendous achievements."