Saad al-Muttalibi, an adviser to the Iraqi council of ministers, said on Friday that if the guards did not receive a just sentence for the killing of 14 Iraqis in 2007, the issue would complicate relations between Iraq and the United States.
"This matter will be appealed in the American court and if not resolved correctly, this will definitely add another strain on the relationship between Iraq and the United States," he said.
"The legality or the procedures of the court case should not stop the criminals from facing justice and receiving a just sentence.
"This is very bad ... for the overall look of the United States outside its borders. It's very important for the Americans to realise that this will work against their interests in Iraq and other places."
Ali al-Dabbagh, the Iraqi government spokesman, said in a statement: "The Iraqi government will follow up on this issue in strength and resolution to bring those murderers of Blackwater to accountability in order to return the rights of iraqi people who are the victims of this crime."
He said "the investigations carried out by the specialised Iraqi authorities confirmed with no doubt that the guards of Blackwater company have committed a criminal murder act and they have violated the combat environment rule to use force while there was no threat against them".
Ricardo Urbina, a district judge, dismissed the charges against the five men on Thursday, saying US justice department prosecutors improperly built their case on sworn statements that had been given under a promise of immunity.
Urbina said the government's explanations were "contradictory, unbelievable and lacking in credibility".
The September 2007 shooting in Baghdad's busy Nisour Square left at least 14 Iraqis dead and inflamed anti-American sentiment abroad.
The Iraqi government wanted the guards to stand trial in Iraq and officials there said they would closely watch how the US judicial system handled the case.
Dean Boyd, a spokesman for the US justice department, said the department was "obviously disappointed by the decision".
Prosecutors can appeal the 90-page ruling and Boyd said the department was "still in the process of reviewing the opinion and considering our options".
Al Jazeera's Rosiland Jordan explained that the judge did say that the case can be brought back to court without prejudice but it was going to be difficult for the justice department to build the case from scratch without using the defendants' statements.
Blackwater Worldwide, which had been hired to guard US diplomats in Iraq at the time, has since changed its management and name to Xe Services.
Despite a string of investigations following the deadly shooting and in spite of an Iraqi government ban on the company, the US state department extended a contract with a subsidiary of the firm in September to continue providing security to US diplomats in the country.
The five guards, Donald Ball, Dustin Heard, Evan Liberty, Nick Slatten and Paul Slough, all formerly in the US military, had been charged with manslaughter and weapons charges, which carried mandatory 30-year prison terms.
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