The soldiers were killed when their convoy hit a roadside bomb north-west of the US military base in Habbaniya, 90 kilometers west of the Iraqi capital, Brigadier General Mark Kimmitt told a press conference in Baghdad.
It is thought to be the worst single incident involving coalition troops since a US military helicopter was downed on January 8 near Fallujah, killing all nine people aboard.
The latest deaths brought to 291 the number of US soldiers killed in action since US President George W. Bush declared major hostilities over on May 1.
In Fallujah, about 50 kilometres west of Baghdad, gunmen ambushed two four-wheel-drive vehicles and killed four civilian contractors inside, said Kimmit, deputy operations commander for the US-led coalition.
"It is our understanding that all four contractors passed away," Kimmitt told a press conference in Baghdad.
In Washington, a State Department official said all four contractors killed were US citizens.
"All four were US civilians," the official said. "We extend our deepest sympathies to their families."
The official, who spoke to AFP on condition of anonymity, would not provide further details on the identities of those killed, citing privacy concerns.
The White House condemned the "horrific attacks by people who are trying to prevent democracy from moving forward," said spokesman Scott McClellan, adding: "But democracy is taking root.
"We condemn these attacks on the strongest possible terms," he said.
The contractors were passing through central Fallujah when they were stopped by a group of armed men who opened fire and set the cars ablaze before fleeing.
The White House condemned the "horrific attacks by people who are trying to prevent democracy from moving forward," said spokesman Scott McClellan, adding: "But democracy is taking root.
"We condemn these attacks on the strongest possible terms," McClellan added.
Kimmit said the US military would inform the families before releasing details on the victims' nationalities or who they worked for.
He said a small minority of insurgents were desperately trying to stop Iraq's march toward democracy and progress but would not succeed.
Kimmit said the key to stopping them was obtaining good intelligence, and that Iraqis were increasingly helping US-led forces.
The Fallujah ambush's aftermath was particularly gruesome.
The two vehicles had burst into flames, and young men threw rocks and stones at the blazing wreckage. One body was seen burning inside one of the cars.
An AFP correspondent on the scene saw two charred bodies dragged from the vehicles, hacked up with shovels and strung by their feet from a nearby bridge, where they were stoned by residents.
Residents shouted: "Down with the occupation, down with America" and "long live Islam."
"Fallujah will be the cemetery of the Americans," said one man, his face hidden by a scarf.
"Revenge, revenge for Saddam," others shouted, referring to the ousted Iraqi president.
One body was headless, and a hand and a leg were strung from an electric pole in the main street of Fallujah, a flashpoint town that has seen frequent attacks against US-led coalition occupying forces.
The bodies were then pulled down and placed on the ground for people to kick and slash with knives.
By early evening, crowds were still celebrating in the streets, with people shooting in the air and distributing candies, an AFP correspondent said.
At one point, some US marines in armoured vehicles were seen at the eastern entrance of the town but they later withdrew.
Fallujah lies at the heart of the so-called "Sunni triangle", a hotbed of die-hard opposition to the occupation, where US Marines have been relieving comrades from the Army's 82nd Airborne Division.
The marines have been conducting frequent "civic action" patrols across the area to try to win the hearts and minds of the population and to flush out the insurgents.
US military officials had been warning of a major escalation of violence ahead of the June 30 transfer of power to Iraq's interim leaders, saying the insurgents were bent on sparking civil war and derailing efforts to rebuild the war-shattered country.
In other incidents on Wednesday, four policemen and six civilians were wounded in a car bomb explosion in Baquba, north of Baghdad, police said.
In the southern port city of Basra, three British soldiers were wounded by a roadside bomb explosion, a British military spokeswoman told AFP.
And in the central holy city of Najaf, about 200 students demonstrated outside city hall to protest recent police "repressive acts".
In Baghdad, several thousand angry Iraqis demonstrated for the fourth consecutive day Wednesday to protest a decision by the US-led coalition to shut down the weekly newspaper of radical Shiite cleric Moqtada Sadr.
The coalition said the weekly was inciting violence, a charge denied by Sadr.