The murder accusation is a new blow to the army's reputation, with another court martial already probing whether British soldiers abused Iraqi detainees.
In a written statement to parliament, Attorney General Lord Goldsmith named three of the men suspected of the murder as Corporal Scott Evans, Private William Nerney and Daniel Harding, who has now left the army. No date has been set for the trial.
The Defence Ministry said it had no comment on the decision to bring charges.
Britain, Washington's key ally in Iraq, has launched more than 130 investigations into deaths and injuries of Iraqis since joining the US-led invasion. The incidents range from combat fatalities to road accidents and deaths of Iraqis in custody.
Last September, Kevin Williams, the first British soldier to be charged with murdering an Iraqi civilian, appeared at a London court. Criminal charges were brought after his commanding officer dismissed court martial proceedings.
In a separate development on Thursday, British army prosecutors trying three UK soldiers accused of abusing and sexually humiliating Iraqi detainees dropped one of the charges against them because of a lack of evidence.
A spokesman for the court martial being held at a British Army base in Osnabrueck, northern Germany, said Lance Corporal Darren Larkin no longer faced a charge of forcing two detainees to strip naked.
Larkin has already admitted a separate charge of assaulting a detainee
A charge against Corporal Daniel Kenyon of helping Larkin to force the men to strip has also been dropped but Kenyon and the third soldier, Lance Corporal Mark Cooley, still face several other abuse charges, which they deny.