Britain will close its full consulate in the southern Iraqi city of Basra as part of government austerity measures, Foreign Secretary William Hague said Tuesday.
The Foreign Office will keep an office in Basra, which was under British command following the 2003 invasion of Iraq, but there will be no permanent staffing, Hague said.
Business leaders with investments in the area criticised the decision amid fears it could give rival Chinese companies a foothold in Basra, Iraq's southern port city and a strategic oil hub.
"We will maintain a British embassy office in Basra to support our work with all of Iraq's central and southern governorates. However, this will not be staffed permanently," Hague said in a statement to parliament.
Diplomats and trade officials can fly down from Baghdad when needed, Hague said.
Savings on the current £6.5 million ($10.4 million, 8.0 million euros) a year cost of the consulate will go towards plans to open 11 new British embassies and eight new consulates in emerging countries by 2015, Hague said.
The wider plans were first announced last year as part of a British government spending review as London tries to cut a record deficit, although the Basra decision is new.
The Iraq-Britain Business Council, a trade body, condemned the move.
"British business presence down in Basra is absolutely critical," executive chairman Emma Nicholson told BBC radio.
"I hope this is a step sideways and not a step backwards. I'm very hopeful the Foreign Office cuts, which I think should not have happened and should not be affecting Basra may be reversed before too long."
The council said it had opened a new office in Basra in July.