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.
Ironically, Iraq are due to face Australia this Saturday
for a qualification match for South Africa 2010 World Cup.
"... 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."