The decision comes after the Iraqi government dissolved the country's National Olympic Committee as well as various sports federations.

The world governing body is in Sydney for its executive committee meeting.

FIFA has agreed to lift the ban if the Iraqi government reverses its decision by midnight on Thursday, Australia time.

If not, Iraq, who became Asian champions in 2007, will miss the rest of the 2010 World Cup qualifiers and be unable to participate in the Beijing Olympics later this year.

"I'm very confident, more than hopeful, that the situation will change," FIFA chief Sepp Blatter told reporters before the ban was announced.

"Can you imagine the reaction of the (Iraqi) people if we had to suspend them from football? I think the minister should think twice about what he has done."