The department said in a statement that employees working in the US Embassy in Baghdad and the US Consulate in Erbil were instructed to leave Iraq, and that "normal visa services will be temporarily suspended at both posts."
It added that American Citizens Services employees who were working in the embassy in Baghdad "will continue to provide consular services to U.S. citizens in Basrah."
The department said that the sudden changes were because the US government's "ability to provide routine and emergency services to US citizens in Iraq is extremely limited" and that as a result of the "terrorist, kidnapping and armed conflict" at americans in the country was too great a risk.
Secretary of State Mike Pompeo made an unannounced visit to Iraq last week amid escalating tensions with Iran.
While there, Pompeo said he spoke to Iraqi officials "about the importance of Iraq in ensuring that it can adequately protect Americans in their country."
US officials have told CNN that the US has "specific and credible intelligence" that suggested Iranian forces and proxies were planning to target US forces in locations including Iraq.
The State Department also said Wednesday that "Americans should not travel through Iraq to Syria to engage in armed conflict", as they may face similar threats to Syria. and face "legal risks" from both the US and Syria.
The US Central Command, in coordination with Operation Inherent Resolve, has increased the force posture level for all service members assigned to OIR in Iraq and Syria. As a result, OIR is now at a high level alert as we continue to closely monitor credible and possibly imminent threats to US forces in Iraq, US Navy Capt. Bill Urban, a spokesman for Central Command, said in a statement Tuesday.
Urban's statement also pushed back against comments made earlier Tuesday by the deputy commander of the US-led military coalition against ISIS, UK Major Gen. Chris Ghika, who said "There has been no increased threat from Iranian-backed forces in Iraq and Syria."
CNN's Ryan Browne and Jamie Crawford have contributed to this report.