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BAGHDAD (Reuters) -- Iraq will deny a licence to Blackwater Worldwide, the private security firm accused of killing Iraqi civilians while protecting U.S. diplomats, U.S. and Iraqi officials said.

"The operating permission for the firm Blackwater will not be renewed. Its chance is zero," said Alaa al-Taie, head of the press department at Iraq's Interior Ministry. "It is not acceptable to Iraqis and there are legal points against it, like killing Iraqis with their weapons."

Blackwater employs hundreds of heavily armed guards with a fleet of armored vehicles and helicopters to protect U.S. diplomats in Iraq under a State Department contract. It boasts that no American has been killed while under its protection.

Iraqi officials have expressed anger with the firm since a September 2007 shooting in which Blackwater guards opened fire in traffic, killing at least 14 unarmed Iraqi civilians.

One Blackwater guard has pleaded guilty in U.S. court to voluntary manslaughter and attempt to commit manslaughter over that incident. Five others are awaiting trial next year on manslaughter charges. The firm denies wrongdoing.

A U.S. Embassy official confirmed that the embassy had been informed that the licence would not be renewed, and said it was working on finding a new arrangement to cover its security.

"We don't have specifics about dates. We are working with the government of Iraq and our contractors to address the implications of this decision," the official said.

Blackwater spokeswoman Anne Tyrrell said the firm had followed the proper procedures to apply for a license and had not been told by the Iraqi or U.S. governments of the outcome.

"Blackwater has always said that we will continue the important work of protecting U.S. government officials in Iraq for as long as our customer asks us to do so, and in accordance with Iraqi law. That has not changed," she said in an e-mail.

Target Of Iraqi Anger

The presence of security contractors, often as heavily armed as the military itself, has been a signature feature of the war in Iraq since the U.S.-led invasion. The U.S. occupation authorities granted contractors immunity from Iraqi law, an edict that remained in place until the beginning of this year.

Private security licenses must be renewed every six months.

Blackwater in particular was a target of Iraqi anger even before the 2007 shooting, because of its sheer size, high profile, and aggressive posture on the streets.

Iraq's Prime Minister Nuri al-Maliki branded the 2007 shooting incident a "massacre" and complained when the U.S. State Department subsequently renewed Blackwater's contract.

Lawrence Peter, director of the Private Security Company Association of Iraq, whose members include Blackwater, said any replacement would need time to gear up for such a big job.

"With sufficient lead time, any capabilities can be replaced," he said. "If they want to switch the security provider to another company or the U.S. military, there will need to be a sufficient period for mobilization involved."