Kuwait Airways says the Iraqi flag carrier owes it about $1.2 billion for aircraft and plane parts taken during the Iraqi invasion of Kuwait in 1990. The ministry blamed "harassment" from Kuwait for the airline's failure.
Last month, lawyers acting for Kuwaiti uthorities tried to have an Iraqi Airlines plane confiscated while at London's Gatwick Airport. It had just arrived following the first direct flight between Baghdad and London for 20 years.
The airline's chief executive also had his passport confiscated and was held in London, but has since returned to Iraq.
Flights still scheduled
Earlier this week, Iraqi Airways said it would end flights to Europe and Sweden because of the efforts of Kuwait to retrieve compensation. Lawyers acting for Kuwaiti authorities are unable to seize planes, however, because they are chartered from other airlines, rather than owned by Iraqi Airways itself.
Iraqi Airways also operates services to several other destinations including Beirut, Tehran, and Dubai.
It is not clear if the airline will cease operations immediately, or continue trading until the company is completely wound up. The next flight between London and Baghdad is still scheduled to fly on Friday, with agents still taking bookings. In the U.K., the closure of the airline is expected to put about 30 jobs at risk.