Shannon Meehan of Creative Associates International Inc was recalled after uttering comments that were "out of bounds", a company spokesman said.
She appears to have been a casualty of simmering sensitivities to any hint of US interference in Iraqi schooling.
Recruited as mananger of field operations for her experience of Iraq and post-conflict Sierra Leone and Kosovo, Ms Meehan had provoked controversy in November when she told the Financial Times that Creative Associates was under express orders from the US Agency for International Development (USAID) to fund only "neutral, apolitical and areligious" materials. She was reported as saying that "if there is a sentence such as 'Praise be to God' we simply change the sentence".
But Steve Horblitt, director of external relations, told The TES this "did not reflect Creative Associates' approach to education". Contacted at the firm's Washington DC headquarters, Ms Meehan declined to comment.
Creative Associates was handed a $62.6 million one-year contract, dubbed RISE (Revitalisation of Iraqi Schools and Stabilisation of Education), last March to rebuild schools.
USAID spokesman Luke Zahner said US policy precluded funding of materials with a "significant religious proselytising purpose. When they do, we step back and say others can pay for it," he said. "We're not trying to impose our views. The key to all our (Iraqi) projects, especially education, is local ownership. We can't impose textbooks or curricula." Ms Meehan had "mischaracterised" Creative Associates' role, which involves helping Iraqi officials to review learning programmes, not editing textbooks, he said.
Mr Horblitt said Ms Meehan's comments were "not accurate in terms of what we carry out... All our staff are fully conversant with the cultural context."
But a source close to the contract said there "may have been a misunderstanding between Creative Associates and Iraq's education ministry.
These are very sensitive, cultural issues".
The source, just returned from Iraq, said US contractors witnessed huge disparities across Iraq's schools, with a minority "comparable" to schools in the West but many others "in dire condition...and, in rural areas, built of mud". Saddam Hussein's regime "abused" schools, using them to host political meetings and house munitions, added the official, who said a key task was repairing parental trust.
RISE officials have come under fire and been car-jacked at gunpoint amid continuing unrest, the source said.
Nearly 12,000 Iraqi schools, 80 per cent of the total, have been damaged, while 6,000 need major rehabilitation, according to the latest data from the education ministry.
Under RISE, Creative Associates and its subcontractors will have helped to train 37,000 Iraqi teachers in "modern teaching methods" by the end of January. To date, 1.5 million student kits, including basic education supplies, have been distributed, said Mr Horblitt.