Iraq calls in Blackwater's tab and says 250 current and former employees need be out of the country in seven days.
Interior Minister Jawad al-Bolani told the Associated Press news agency that all "concerned parties" were notified of the order three days ago.
It comes after a US judge last December threw out manslaughter charges against five Blackwater guards over the 2007 killing of 17 Iraqis in Baghdad.
The incident stoked anti-American sentiment in Iraq.
The activities of foreign security firms in Iraq have been curbed since then.
US Vice-President Joe Biden has said the US government will appeal against the court ruling.
In other news, two former Blackwater employees allege the firm charged the US government for tip drills.