Iraqi National Security Adviser Mouwafak al-Rubaie told The Associated Press that al-Zarqawi had been buried in a "secret location" in Baghdad.
The U.S. military confirmed the burial but declined to give more details.
"The remains of Abu Musab Al-Zarqawi were turned over to the appropriate government of Iraq officials and buried in accordance with Muslim customs and traditions," the military said in an e-mailed statement. "Anything further than that would be addressed by the Iraqi government."
Al-Rubaie would not say when the Jordanian-born militant, who was killed June 7 in a U.S. air strike northeast of Baghdad, was buried or give more specifics on the location of the grave.
Al-Zarqawi's family had called for his body to be returned to Jordan for burial, but the government in Amman had refused because of the triple suicide bombing his al Qaeda in Iraq organization carried out in the country last year.
The Amman bombings sparked widespread outrage among Jordanians who had been sympathetic to insurgents battling the U.S. military presence in Iraq.
The U.S. military listed the cause of death as "primary blast injury of the lung" after an autopsy was performed on al-Zarqawi, who survived for nearly an hour after the air strike outside Baqouba, 35 miles northeast of Baghdad.
In other developments:
Al-Zarqawi's brother on Sunday rejected news of his burial in Iraq, demanding that his body be transferred to Jordan instead.
Sayel al-Khalayleh told The Associated Press that al-Zarqawi's relatives "don't accept" his burial in Iraq and accused the U.S. of lying about the matter.
"Bush took his body to the United States," he said.
"Even if he is buried in Iraq, we will continue to ask for the body to be transferred and buried in Jordan," al-Khalayleh said. "He should be buried in his own country."
"We sent demands to the Jordanian foreign ministry and to the International Red Cross and Red Crescent for the body to be transferred to Jordan after his death but to no avail," al-Khalayleh said.
"We will never accept that a Jordanian dies abroad and not be allowed burial in his homeland," he said.
Al-Zarqawi was born Ahmad Fadhil Nazzal al-Khalayleh and raised in the industrial town of Zarqa, east of the capital Amman. He left Jordan in 1999 for Afghanistan, where he remained until just after the 2001 U.S. invasion of that country, when he moved to Iraq.
Earlier last week in apaid tribute to al-Zarqawi, calling him a "lion of the holy war" and a "prince," CBS News correspondent Richard Roth
Iraq released a most-wanted list of 41 names Sunday, including Saddam Hussein's wife and eldest daughter, as well as the new leader of al Qaeda in Iraq and one of the ousted president's closest allies.
The government also announced a bounty for several figures on the list.
"We are releasing this list so that our people can know their enemies," National Security Adviser Mouwafak al-Rubaie said at a news conference. He added that countries hosting those on the list and Interpol had been informed.
The largest reward was $10 million for Izzat Ibrahim al-Douri, a former top official in the Saddam regime who has eluded capture since the U.S.-led invasion more than three years ago. Al-Douri was believed to have played a major role in launching the insurgency.
The government also offered a $50,000 reward for Abu Ayyub al-Masri, who replaced al-Zarqawi after his death. The announcement came just two days after the U.S. administration approved up to $5 million in exchange for al-Masri, whose real name is Abu Hamza al-Muhajer.
"Those people are carrying out bombings and random killings as they aim to inflict damage on the Iraqi people and ignite a sectarian war between Shiites and Sunnis," al-Rubaie said in announcing the list.
The ousted president's wife, Sajida Khairallah Tulfah, who is believed to be in Qatar and his eldest daughter, Raghad, who has been living in Jordan, also were named, but no reward was offered for information on them.
"We have contacted all the neighboring countries and they know what we want. Some of these countries are cooperating with us," he said. "We will chase them inside and outside Iraq. We will chase them one after the other."
The national security adviser also said authorities were closing in on the Egyptian-born al-Masri.
"We were able to infiltrate his network. You will hear news within the coming weeks," he said.
Al-Rubaie stressed the list was separate from that issued by the U.S. military. Most of its members have been either captured or killed.
"This is an Iraqi list that has nothing to do with the 55-member list issued by the American government," al-Rubaie said.