Foreign Secretary David Miliband has declared Iraq "open for business" and a good place for UK firms to do business, during a surprise visit to the country.
After meeting his Iraqi counterpart, Mr Miliband told a press conference the UK was committed to investing in Iraq.
The UK-based Mesopotamia Petroleum Company has just agreed a £277m ($400m) joint venture to drill for oil in Iraq.
Mr Miliband is expected to visit British forces in Basra on Friday, as they prepare for withdrawal in July.
He will also meet Iraqi Prime Minister Nouri al-Maliki during his two-day visit, his first since April 2008.
UK forces have lost 178 troops since the 2003 invasion and currently have a 4,100-strong force in the country.
They handed over control of Basra airport, the main military base in southern Iraq, on 1 January and have been training the Iraqi army.
Britain will be a major investor in Iraq
UK Prime Minister Gordon Brown has said Britain's mission will be completed "by the end of May, or earlier" and withdrawal is scheduled by the end of July.
Mr Miliband told the press conference: "With the improving security situation... our relationship becomes one defined not just by defence and security but also by politics, by economics, by culture and by education."
The deal between the Mesopotamia Petroleum Company and Iraq's oil ministry will see 60 oil wells drilled per month, each producing 2,000 barrels of crude per day.
"This sends an important signal, not just to the people of Iraq about the long-term economic commitment of Britain to Iraq, but also... to British business [that] Iraq is open for business," said Mr Miliband.
Iraqi leaders recently invited foreign firms to invest in the oil-rich state as security improves.
Praise for Obama
Mr Miliband said a number of UK companies were already interested, not just within the oil industry but in sectors such as education.
"Britain will be a major investor in Iraq," he added.
Mr Miliband also praised US President Barack Obama's administration for its careful and "wholly appropriate" approach to pulling out troops.
Mr al-Maliki has said his country was not worried by Mr Obama's plans for an accelerated withdrawal, as the president prepares to announce a timeline for the process.
The Foreign Office said Mr Miliband's discussions with Mr al-Maliki were likely to focus on trade, education and cultural links, the Middle East peace process and human rights.
Students taking advantage of a UK-funded scholarship scheme to help bright Iraqis attend university in Britain will also talk to Mr Miliband about the scheme.
Mr Miliband's visits comes after senior figures including French President Nicolas Sarkozy and German Foreign Minister Frank-Walter Steinmeier also visited the country this month.
He arrived in Iraq as the UK government faced claims of collusion with US authorities by handing over terror suspects in the country.
Defence Secretary John Hutton said two men detained in 2004 were transferred to US custody and then transported to Afghanistan for questioning.
The government had previously insisted Britain had no direct involvement with these "extraordinary rendition" flights.
Mr Hutton apologised for past incorrect answers given to MPs. Mr Miliband last year admitted two rendition flights had landed to refuel on UK territory in 2002.
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