The Sunday Telegraph said the 16-man unit of the Special Air Service acted on intelligence obtained by an Iraqi agent working for Britain's Secret Intelligence Service, and shot the men in a combined SAS and U.S. operation in July.
The terrorists were wearing suicide vests laden with explosives. Officials said they were intending to target cafes and restaurants frequented by members of the Iraqi security forces.
The newspaper said details of the operation were withheld, as it took place in the same week that a Metropolitan Police firearms unit in London shot dead Jean Charles de Menezes, a 27-year-old Brazilian electrician, in the mistaken belief that he was a suicide bomber.
The troops were part of Task Force Black, the Baghdad-based squadron of SAS troopers and members of the Delta Force, the clandestine U.S. army special forces unit.