The interim prime minister said the state of emergency would last 60 days and apply throughout all of Iraq except for the calm northern Kurdish region, where it is not considered necessary.
Declaring the state of emergency allows Allawi's office to issue orders usually associated with the imposition of martial law. They include instituting curfews, restricting freedom of assembly and movement, conducting house-to-house searches, and detaining people suspected of being security risks.
Allawi today said he is immediately using his emergency powers to impose a curfew on Al-Fallujah and Al-Ramadi and to close the Baghdad International Airport for 48 hours.
Some analysts say Allawi may have decided to declare the state of emergency as preparation for the anticipated U.S.-led military action against insurgents in Al-Fallujah.
Mustafa Alani of the Gulf Research Center in Dubai says the declaration helps justify the government's decision to approve an operation which could result in civilian casualties.
"The timing of declaring the emergency is basically to give legitimacy for the operation against Fallujah. This operation will be part of the state of emergency. And basically it gives legal protection to the Iraqi forces which are going to intervene in Fallujah. He feels this is needed [because] he feels that the Fallujah battle will not be easy, with high casualties, and basically he will be subjected to criticism and this is the reason that he wants some sort of legal cover," Alani said.
A previous U.S. military operation against insurgents in Al-Fallujah in April was suspended amid protests by many Iraqi leaders amid reports of hundreds of civilians dead. The subsequent truce handed over security in the city to a force led by former officers of Saddam Hussein's army but that force was later sidelined by the rebel groups remaining in the city.
Alani said that beyond giving legal protection, declaring the state of emergency is not likely to have much effect on Iraq's security situation. He said that is because U.S. and Iraqi forces already have long exercised many of the martial-law provisions in the decree.
"Actually, on the practical side, the state of emergency has already existed for the last few months. And the powers that the police are practicing, and the arrests without any legal responsibility, without really referring to the courts or without [observing formal] legal procedures, it is all a state of emergency," Alani said.
Other analysts say the declaration of the state of emergency may be intended to send a message to other restive areas of Iraq that Baghdad will crack down hard on any rebellions in sympathy with Al-Fallujah's insurgents.
Mahmud Uthman, an independent Kurdish analyst and member of the former Iraqi Governing Council, said such sympathies existed during the April fighting in Al-Fallujah.
At that time, insurgents in Al-Najaf loyal to radical Shi'a cleric Muqtada al-Sadr declared common cause with rebels in the Sunni city of Al-Fallujah based on their shared hostility to U.S. forces.
But Uthman told RFE/RL from London that, with or without a state of emergency, he does not see as much sympathy for the Al-Fallujah rebels today among al-Sadr's supporters as there was in April.
He said that, instead, al-Sadr's camp is showing increasing interest in participating in Iraq's political process -- something the Al-Fallujah rebels reject. "This time [it] looks a bit different because the Shi'a are going to toward elections, they are enthusiastic, and even al-Sadr's people are included, as I heard, in the list that [Grand Ayatollah Ali] al-Sistani is going to make on behalf of Shi'ites," Uthman said.
A spokesman for preeminent Shi'a religious leader al-Sistani announced last month that an al-Sistani-backed committee will try to form a single list of candidates to run in the election. He said the list is open to all Iraqis, but will be dominated by Shi'a religious parties.
Uthman said one danger facing Allawi in declaring a state of emergency is that some Iraqis may resent it as not necessary outside central Iraq, the most restive area of the country. He said some Iraqis also could view the state of emergency as complicating the country's chances of having free and fair elections in January.
"The Allawi government, I think they are trying their best to prepare the ground for elections. But I don't think the ground for elections will be prepared through martial law. Martial law creates an extraordinary situation which even could complicate the situation for elections," Uthman said.
He said that declaring a state of emergency could open Allawi's government to accusations by rival politicians that the ruling parties in Baghdad are seeking to limit their ability to hold rallies and win voters.
The 60-day state of emergency is due to end shortly before the planned election date of 27 January.
[For the latest news on Iraq, see RFE/RL's webpage on "The New Iraq".]