US Defence Secretary Robert Gates has ordered a review of the way private security firms operate in Iraq and the oversight given by the US military.
In Iraq, some 7,000 private security contractors work for the Pentagon
The move follows an incident earlier this month involving US security firm Blackwater, in which 11 Iraqis died.
The Iraqi government reacted by briefly suspending the firm, and drafting new laws regulating private security.
A Pentagon spokesman said Mr Gates had "real concerns" and wanted to ensure contractors worked within US rules.
About 7,000 private security contractors work for the Pentagon in Iraq.
The US state department also employs three separate security firms to protect diplomats and important sites within Iraq.
'Means and resources'
Addressing the Senate Appropriations Committee on Wednesday, Mr Gates said that his concern was "whether there has been sufficient accountability and oversight" of contractors.
Mr Gates wants to ensure private firms comply with US military rules
He said the Pentagon had sufficient legal authority to oversee private security firms but that the issue was whether commanders on the ground had sufficient "means and resources" to exercise those powers.
The defence secretary was giving testimony to Congress as he requested $190bn (£94bn) in funding for the wars in Iraq and Afghanistan in 2008.
Mr Gates on Sunday sent a five-person fact-finding team to Iraq to examine the issue of private security contractors more closely.
A US-Iraqi panel is already investigating the shooting, which provoked widespread anger in Iraq and prompted the Iraqi government to order a temporary halt to Blackwater's operations in the country.
Blackwater USA has said its guards reacted lawfully to an attack on a US diplomatic convoy.
The BBC's Jonathan Beale in Washington says that while the incident involving Blackwater is at the centre of inquiries, the intervention of Mr Gates suggests that concerns may go much further.
Pentagon spokesman Geoff Morrell said Mr Gates had already begun asking questions about private contractors in Iraq and the answers relating to oversight had "not been satisfactory".
"He is looking for ways to make sure we... do a better job on that front," he told reporters.
Mr Gates' deputy, Gordon England, has issued a memo to US commanders, warning them they that are responsible for overseeing contractors.
The Pentagon wants to ensure "that the means we have to enforce contracts or enforce the rules are abundantly clear to commanders", he said.
The memo is also intended to make sure the military has the resources in place "to make sure they hold people accountable for any misdeeds", he added.
The contractors are currently granted immunity from prosecution under Iraqi law by Order 17 of the Coalition Provisional Authority - the now-defunct interim body set up by the US-led coalition in the wake of the fall of Saddam Hussein.
The agreement was extended shortly before the CPA was disbanded in June 2004.