"The cabinet decided to take legal measures to sue the companies who provided the ex-regime with the chemical weapons used in Halabja," the statement issued by the government said.
However, it did not elaborate on any specific companies that might be the subject of the legal challenge.
In 2005, a court in the Netherlands sentenced a Dutch businessman to 15 years in prison - later raised to 17 years - for supplying the raw materials for poison gas to Saddam Hussein's government.
The gas was used by his government in Halabja, and also in the 1980-1988 war with Iran.
'Positive step'
Jamal Abdulla, a spokesman for the government of the largely autonomous Kurdish region, said they had not been informed of the decision, but welcomed it as a positive step.
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"This decision taken by the Iraqi government will help to enhance and develop the services delivered to its citizens"
Fouad Salih, mayor of Halabja |
Residents of Halabja have long complained of neglect by Kurdish and Iraqi government authorities, although development in the town has accelerated in the last two years.
Fouad Salih, the town's mayor, also welcomed the decision.
He said: "The former regime's crime destroyed the whole town. And this decision taken by the Iraqi government will help to enhance and develop the services delivered to its citizens."
Saddam's government waged a military campaign called Anfal (spoils of war) against Iraq's Kurds in the 1980s that killed tens of thousands.
Ali Hassan al-Majeed, a cousin of Saddam widely known as "Chemical Ali" for his use of poison gas, was sentenced to death last June for his role in the campaign but legal issues have largely held up his execution.