The prime minister wants to reward civil servants with a "special Iraq honours list", it has been reported.
Mr Davis said the plan was at odds with honours recommendations
A leaked Whitehall memo shows officials who worked on the flawed weapons dossier could be in line for awards, the Sunday Times said.
The names are expected to be announced in the New Year honours list, it said.
Number 10 said Prime Minister Tony Blair felt those in "incredibly difficult positions in Iraq" should be recognised for their work.
The Sunday Times said the memo showed Mr Blair believed some 50 non-military officials should be given knighthoods, OBEs, MBEs and other awards.
A Downing Street spokesman said: "We do not comment on leaks, but this is primarily about recognising the huge sacrifice of people who have worked at the sharp end in Iraq.
"The prime minister has made clear these are exceptionally difficult circumstances and it is entirely right that this is recognised in some form."
Sir David Omand, the national security co-ordinator responsible for overseeing the intelligence services, is among the recommendations, it said.
Jane Marriott, who was head of the Foreign Office's nuclear non-proliferation section, is reported to be another.
Government sources suggested the majority of people who will be rewarded are contractors who have worked in Iraq as part of the attempt to rebuild the country.
Shadow Home Secretary David Davis said: "I know of no precedent of there being a ration of honours for promoting the prime minister's policy.
"While there may be worthy folk who have done work in Iraq, the idea of rewarding civil servants for a policy that has failed on this scale is hard to understand."
Mr Davis added that the plan was "completely at odds" with recommendations made by the Commons Public Administration Select Committee earlier this year.