The 25-year-old was part of a unit of seven marines and a Navy medic accused last year in the murder of the unarmed Iraqi in the town of Hamdania.
Thomas pleaded guilty last month to a string of charges, including murder, kidnapping and lying to investigators.
Four others in the Hamdania case have pleaded guilty to lesser charges, but Thomas, who was the unit's second in command, had faced a life sentence.
Death sentence
The case is one of a series in which US military personnel in Iraq damaged the image of the US through the use of excessive or unjustified force.
Prosecutors said they now plan to reissue charges that may include premeditated murder, which would put Thomas at risk of a death sentence.
Defence lawyers intend to argue that Thomas was simply following the orders of the unit commander when he took part in the killing.
The marines allegedly plotted to capture and kill a suspected terrorist and make the incident look like a legitimate battle.
When the marines did not find the suspect at home, they allegedly grabbed a neighbour, Hashim Ibrahim Awad, instead.