The move was the latest in a series of steps designed to eliminate vestiges of Saddam's regime from postwar Iraq.
"The Coalition Provisional Authority plans to create, in the near future, a New Iraqi Corps. This is the first step in forming a national self-defense capability for a free Iraq," said the statement released by L. Paul Bremer, the administration's top official.
"Under civilian control, that corps will be professional, nonpolitical, militarily effective, and representative of all Iraqis," it said.
The statement did not elaborate on when the new defense force would be set up. But U.S. officials have in the past indicated it would include members of the army, navy and air force who were not compromised by their association to the banned Baath Party and who were not involved in criminal acts.
In other developments:
Under the new U.S. orders, the Ministry of Defense, the Republican Guard and "other specified security institutions which constituted and supported the most repressive activities of Saddam Hussein's regime," also have been disbanded.
Founded in 1980, the Republican Guard — a force tens of thousands strong that had a separate command structure from the rest of the army — had the best equipment, the best training and the best pay. This was meant to ensure the elite corps would remain loyal and defend Saddam in an emergency. Its commanders were closely watched by intelligence agents who reported to Saddam's son Qusai.
In contrast, Iraq's army was seen as demoralized and poorly equipped, battered by the 1980-88 Iran-Iraq war, the first Gulf War and more than a decade of U.N. trade sanctions imposed because of the 1990 invasion of Kuwait.
Friday's order also ended conscription, turned the property of the dissolved entities over to the new administration and dismissed all employees of the armed forces, Republican Guard and the Defense Ministry.
It also abolished the Information Ministry, which tightly controlled Iraq's media and the work of foreign journalists.
The announcement follows the administration's May 16 decree abolishing Saddam's Baath Party and ordering the dismissal of party officials from the civil service.
USAID policies in Iraq came under scrutiny in Washington on Thursday, when members of Congress pressed for a public explanation of why Iraq reconstruction contracts were awarded by federal agencies without full competition.
The questioning was prompted by policies of USAID, which allowed only a small number of invited firms to bid for rebuilding and awarded the main contract to Bechtel National, part of the Bechtel Corp., which has had several prominent Republicans as top executives.
Defense officials also faced lawmakers critical of the Pentagon's strategy for a postwar Iraq.
Deputy Defense Secretary Paul Wolfowitz Thursday told the Senate Foreign Relations Committee that U.S. plans cannot be judged "against a standard of unachievable perfection."
He also warned that Iraq "will seem even messier" while its political problems are being worked out.
"I am concerned that the administration's initial stabilization and reconstruction efforts have been inadequate," said committee chairman Richard Lugar. "The planning for peace was much less developed than the planning for war."
Wolfowitz highlighted potential problems that were averted and progress that has been made. Few oil wells were destroyed, and there is no food, health or refugee crisis, he said. Electric service is better than in the past 12 years, primary schools have reopened and the water system is at 60 percent of prewar levels, he said.