In a statement, the Embassy said Washington has "limited ability to provide emergency services to the US citizens in Iraq."
"Normal visa services at both posts in Iraq and Erbil will be temporarily suspended," it added.
The decision came amid reports of rising tensions in the Middle East after the Trump administration warned of potential threats against American forces in the region from Iran or Iranian-backed proxies, the Voice of America reported.
Last week, the US deployed an aircraft carrier and nuclear-capable bomber planes to the Persian Gulf, with a Patriot missile battery and an amphibious warship on the way. The Patriot system offers protection from aircraft and missiles, while the warship carries Marines and the aircraft, hovercraft, or boats needed to put them ashore to fight in distant places.
Meanwhile, President Donald Trump on Tuesday rejected a report that he is considering sending 120,000 troops to counter Iran, but did not rule out deploying "a lot more" soldiers in the future.
The move also comes after US Secretary of State Michael R Pompeo paid a surprise visit to Baghdad last week after abruptly cancelling a scheduled trip to Germany citing "pressing issues."
According to CNN, Pompeo met Prime Minister Adil Abd al-Mahdi, President Barham Salih and other senior officials in his four-hour visit to the country.
Shortly after his meeting in Baghdad, Pompeo said that he deliberated officials about the "importance of Iraq ensuring that it's able to adequately protect Americans in their country."
"They both provided assurances that they understood that was their responsibility," he said.
"They understood too it's important for their country. We don't want anyone interfering in their country, certainly not by attacking another nation inside of Iraq and there was complete agreement," the top US diplomat said while making a veiled reference to Iran.