The Trump administration may close its embassy in Iraq if the government does not take steps to protect it from attacks by Iranian-backed militants.
U.S. Secretary of State Mike Pompeo told Prime Minister Mustafa al-Kadhimi of the plans to withdraw during a call on September 26, news agencies reported.
An official announcement has not been made.
The United States has accused Iranian-backed militias of launching rockets at the embassy and demanded Kadhimi crack down on them.
The embassy in Baghdad, which is located in a heavily fortified zone, has grown to become one of the largest U.S. diplomatic outposts.
It was unclear whether Washington would reverse its decision should Kadhimi's government step up its efforts to protect Western diplomatic and military personnel.
The U.S. military leads a coalition that has been battling the Islamic State in Iraq and Syria from a Baghdad headquarters since 2014.
Iranian-backed protesters stormed the U.S. Embassy in Baghdad on New Year's Eve following coalition air strikes against militia targets inside Iraq days earlier.
The United States accused Iraqi security forces of allowing the protesters to pass security checkpoints.
Based on reporting by AP and The Washington Post