Iraqi official: Blackwater staying on 'is bad news'

BAGHDAD, Iraq (CNN) -- The U.S. State Department's renewal of Blackwater's contract to provide security in Iraq "is bad news," an adviser to Iraqi Prime Minister Nuri al-Maliki said.

Blackwater guards shot and killed 17 people, including women and children, last September, prompting an outcry and protest from Iraqi officials.

"This is bad news," al-Maliki adviser Sami al-Askari said. "I personally am not happy with this, especially because they have committed acts of aggression, killed Iraqis, and this has not been resolved yet positively for families of victims."

About 25,000 private contractors from three companies protect diplomats, reconstruction workers and government officials in Iraq. Under a provision put into place in the early days of the U.S.-led occupation of Iraq, security contractors have immunity from Iraqi prosecution. Watch Iraqis express anger over the announcement »

Al-Askari said he would push for the Iraqi government to contest the contract renewal.

"The U.S. government has the right to choose what contractors it chooses, but Iraq should also have the right to allow or ban certain contractors from operating on its territory," he said.

Al-Askari said there is a general mood of displeasure within the Iraqi government because of the contract renewal.

Iraqi government spokesman Ali al-Dabbagh said a joint Iraqi-U.S. commission was set up after the shootings, and Iraqis told U.S. officials that the rules of engagement and use of force must be changed.

As a result, a State Department security officer accompanies every convoy manned by contractors, Al-Dabbagh said, and every vehicle is outfitted with a security camera. Recordings from the camera are sent to a command center.

Al-Dabbagh said the Iraqi government still wants Blackwater to come under the jurisdiction of Iraqi law and its courts.

"Most importantly, the Iraqi investigation concluded that Blackwater committed a crime at Nusour Square," he said. "The U.S. informed us that the FBI investigation is still not done, and if Blackwater [personnel are] ... convicted, then the contract will be reviewed."

Another al-Maliki adviser, Sadeq al-Rikabi, said the contract would be temporary since the U.N. mandate under which the United States operates in Iraq will expire at the end of the year, to be replaced by a bilateral agreement under negotiation.

"No doubt, the role of the U.S. military and contractors will be agreed on" in the new arrangement, al-Rikabi said.

Blackwater is one of three contractors working under a "task order" to provide security services in Iraq. The other two are Triple Canopy and DynCorp.

The State Department contract must be renewed every year and is up for renewal next month. In effect, Blackwater's contract will roll over for another year, said Greg Starr, who heads the State Department's Diplomatic Security Service.

Starr said new rules and an agreement between the State Department and U.S. military have improved coordination and the supervision of contractors.

Blackwater must work under the rules of the Iraqi government, he said.

The FBI is in charge of the U.S. investigation of the September incident, in which survivors and victims' family members contend Blackwater guards started shooting without provocation.

Blackwater says its employees were returning fire after coming under attack from armed insurgents, but an Iraqi investigation called the killings "premeditated murder."

Starr said the U.S. government, in particular U.S. Ambassador to Iraq Ryan Crocker, will take a close look at the FBI's investigation report, "and then we decide whether it is consistent with U.S. goals and policies to continue the contract."

It will be important to see whether the FBI finds Blackwater itself criminally responsible, or merely a few of its employees, Starr said.

"We can terminate contracts for the convenience of the government if we have to," he said. "I am not going to prejudge what the FBI is going find in its investigation. It's complex. I think the U.S. government needs protective services."

"I am up to this point very satisfied with the changes we have seen," Starr said. "Essentially, I think they do a very good job. The September 16 incident was a tragedy; it needs to be investigated carefully. The results of that will come out eventually and we will decide how we will proceed."

Blackwater spokeswoman Anne Tyrrell declined to comment, referring all questions to the State Department. E-mail to a friend

CNN State Department Producer Elise Labott and Jomana Karadsheh contributed to this report.