A security contractor at the Australian embassy in Baghdad has been shot dead.
It is understood the contractor was an employee of the Unity Resources Group, which provides security to Australian diplomats and staff at the embassy and in the Iraqi capital. 
Foreign Affairs Minister Julie Bishop confirmed the 34-year-old man's death.
"The government extends its condolences to the family of the Australian man over this tragic incident," she said. "All appropriate assistance is being provided to his family."
The Australian embassy is located within the International Zone in Baghdad. 
Sources in Iraq said the dead man was a former Australian special forces soldier working for Unity.
The shooting follows claims about security, weapons safety and diplomatic breaches involving Unity.
Another Unity employee, also a former Australian commando, is being questioned about the shooting at Sather Air Base, 16 kilometres from downtown Baghdad, sources say.
The Department of Foreign Affairs has made no comment about the incident, which will raise new concerns about security of embassy staff in one of the world's most dangerous countries.
Unity Resources Group has not responded to a request for comment.
The incident took place late on Wednesday.
Ms Bishop said the shooting would be "thoroughly investigated".
"I am advised the high level of security is being maintained at the embassy."
In   February, Department of Foreign Affairs and Trade secretary Peter Varghese strongly dismissed reports of problems with the contract with Unity.
Mr Varghese told a Senate hearing that the reports of corner-cutting and a drop in the price paid by the department under the contact had come from "disgruntled former employees" and the claims were "without foundation".
"The department puts the highest priority on the safety and welfare of its employees, and the suggestion that we would run a cut-price security system is, frankly, quite offensive," he said.
"The core question here is: has this contract been managed in a way that doesn't put our staff at any additional risk? And the answer to that is clearly in the affirmative."
Mr Varghese said the department had looked into the media reports about the security issues and was satisfied that security at the Baghdad embassy was "operating effectively and that the transition to the new arrangements has not created any additional risk to our staff".
The new contract price for the security had dropped to $51 million over three years - down from the previous contract of $100 million over five years. But this was due to greater competition among security providers in Iraq, he said.
Ms Bishop said "in light of the ongoing investigation, and out of respect for the man's family, the Australian government will not provide further comment at this time".