A US military helicopter air strike on a car on Wednesday night killed eight civilians in Baiji, north of Baghdad, two police officials said on Thursday.
Baiji's police chief, Colonel Mudhher al-Qaisi, told Reuters the civilians were shepherds who were in a farming area in the town when the strike took place.
"This is a criminal act. It will make the relations between Iraqi citizens and the U.S. forces tense. This will negatively affect security improvements," said al- Qaisi.
A US military spokeswoman, Lt-Col Maura Gillen, said the military was following up the incident, in which "suspicious activity" had been noted and warnings to stop the car were ignored.
The incident comes at a sensitive time.
Senior government officials expressed outrage after reports this month that a U.S. soldier had used a copy of the Koran, the Muslim holy book, for target practice. The soldier was disciplined and removed from Iraq.
Reuters photographs showed relatives of the dead standing beside their corpses covered by white sheets outside a mosque in Baiji, 180 km (110 miles) north of Baghdad.
"There were two boys (vicitims), one was eight and the other was 11," said police major Ahmed Hussein.
A doctor who asked not to be named said Baiji hospital received eight bodies after the incident, which took place in the early evening, including a 60-year-old man.
(Reporting by Sabah al-Bazi; Writing by Michael Georgy; Editing by Catherine Evans)