Iraq has freed a Hezbollah member accused of plotting to kill five US soldiers in a move that has triggered anger in the United States, US and Iraqi officials said on Friday.

"The judiciary decided to release Ali Musa Daqduq due to a lack of sufficient evidence," a high-ranking Iraqi official said, asking to remain anonymous. He has now left the country for Lebanon, he added.

Daqduq was captured in 2007 on suspicion that he had helped organize a raid that led to the deaths of five US forces. He was held by American troops until he was handed over to Iraqi officials in December.

The Iraqi official did not specify when he was released, but the US State Department reacted angrily to the news.

"While we strongly object to his release, we've been informed by the Iraqis that they determined that they were no longer able to hold him under Iraqi law," State Department spokeswoman Victoria Nuland said.

"We continue to believe that Daqduq should be held accountable for his crimes. We've made this point very clearly to the government of Iraq."

The US military said Daqduq, captured in Iraq's southern city of Basra in March 2007, had confessed to training Iraqi extremists in Iran.

The US military alleged the Quds Force, a unit of the Iranian Revolutionary Guards, and the Lebanese militant group Hezbollah were jointly operating camps near Tehran to train Iraqis before sending them to carry out attacks in Iraq.

Republican senators John McCain and Lindsey Graham hit out at Daqduq's release calling it "disgraceful" that he was now "free to rejoin the terrorists bent on the destruction of America and its allies."

Nuland told journalists Washington would pursue other means to have Daqduq brought to justice and confirmed the United States had been in touch with Lebanon about his case, without saying if they had asked for his arrest.

But the senators slammed the US administration for "failing to effectively exercise influence with the Iraqi government."

"Daqduq's release further shows that America's influence in the region is waning as a result of this Administration's failed foreign policy," they said in a statement.

"The United States now has so little influence that it could not prevail upon the Iraqi government to extradite Daqduq to the US to stand trial for his crimes."