BAGHDAD (Reuters) - Iraq will review the status of all security companies after this week's "flagrant assault" by contractors from the U.S. firm Blackwater in which 11 people were shot dead, the government said on Tuesday.

Government spokesman Ali al-Dabbagh said the cabinet backed an Interior Ministry decision to "halt the license" of Blackwater, which provides security for the U.S. embassy, and launch an immediate investigation into the shooting.

Shi'ite cleric Moqtada al-Sadr, adding his voice to Iraqi anger over the incident, urged the government to "cancel this company's work, and the rest of the criminal and intelligence companies" that employ tens of thousands of people across Iraq.

In fresh violence, four car bombs in Baghdad killed 17 people and wounded 50, police said.

"Cabinet affirmed ... the need to review the situation of foreign and local security companies working in Iraq, in accordance with Iraqi laws," Dabbagh said.

"This came after the flagrant assault conducted by members of the American security company Blackwater against Iraqi citizens," he said in a statement after the cabinet meeting.

Iraq's Interior Ministry said 11 people were killed when Blackwater contractors opened fire randomly after mortar rounds landed near to their convoy in western Baghdad on Sunday.

Blackwater said its guards reacted "lawfully and appropriately" to a hostile attack. It said late on Monday it had received no official notice from Iraq's Interior Ministry.

LEGAL STATUS UNCLEAR

U.S. officials in Baghdad have yet to clarify the legal status of foreign security contractors in Iraq, including whether they could be prosecuted by Iraqi authorities.

Security sources said few foreign security companies hold current licenses, most of them simply not bothering to renew their one-year licenses after landmark 2005 elections because the new government's policy was unclear.

Pentagon spokesman Bryan Whitman said it was important that security contractors behaved in a way "that is consistent with the laws and rules of the sovereign nation of Iraq," but declined to say whether they fell under Iraqi law.

Many Iraqis see the contractors, who have worked in Iraq since the U.S.-led invasion to topple Saddam Hussein in 2003, as private armies that have acted for too long with impunity.

"These cases have happened more than once and we can't keep silent in the face of them," Interior Minister Jawad al-Bolani said on Monday.

Ministry spokesman Brigadier-General Abdul-Karim Khalaf said Iraq had the right to take action if the Blackwater force had fired on civilians.

"Definitely we have the right. If they committed this act, they should be tried," he said.

The latest bombings in Baghdad came after Sunni Islamist al Qaeda militants pledged a renewed campaign of violence to mark the Muslim holy month of Ramadan, which started last week.

Police said Tuesday's deadliest car bomb attack killed eight people and wounded 22 near a market in the Ur neighborhood, not far from the Shi'ite district of Sadr City.

Three other car bombs killed a total of nine people and wounded 28 in Baghdad, police said. At least two of the explosions were heard echoing across the centre of the city.

In Diyala province, a stronghold of al Qaeda militants, a suicide bomber killed four people and wounded 14, police said. The bomber walked into a mobile telephone shop in Jalawla, near the border with Iran, and detonated an explosives belt.

U.S. and Iraqi forces launched a security campaign around Baghdad in February, aimed at curbing sectarian violence and win time for Prime Minister Nuri al-Maliki's government to pass laws aimed at reconciling Iraq's warring Shi'ite and Sunni Arab factions.

But the legislative progress has been painstakingly slow and Tuesday's parliamentary session was called off when just 108 members showed up, well below the 138 required for a quorum.

(Additional reporting by Mariam Karouny and Paul Tait in Baghdad and Andrew Gray in Washington)