The demands, part of an Iraqi government report examined by The Associated Press, also called on U.S. authorities to hand over the Blackwater security agents involved in the Sept. 16 shootings to face possible trial in Iraqi courts.
CBS News has found the Iraqi witness accounts of the shootings are remarkably consistent.
They say a four-vehicle Blackwater convoy drove into a traffic circle but was blocked by barriers protecting a maintenance crew, reports CBS News correspondent Elizabeth Palmer.
The Blackwater guards threw water bottles, warning the cars to stop, but as one car continued to inch forward, Blackwater started shooting, instantly killing the driver.
The tone of the Iraqi report appears to signal further strains between the government of Prime Minister Nouri al-Maliki and the White House over the deaths in Nisoor Square, which have prompted a series of U.S. and Iraqi probes and raised questions over the use of private security contractors to guard U.S. diplomats and other officials.
Al-Maliki ordered the investigation by his defense minister and other top security and police officials on Sept. 22. The findings mark the most definitive Iraqi positions and contentions about the shootings last month.
The report also highlights the differences in death tolls and accounts that have complicated efforts to piece together the chain of events as one Blackwater-protected convoy raced back toward Baghdad's Green Zone after a nearby bombing, while a second back-up team in four gun trucks sped into the square as a back-up team.
The Iraqi investigation charges the four Blackwater vehicles called to the square began shooting without provocation. Blackwater contends its employees came under fire first.
The government, at the conclusion of its investigation, said 17 Iraqis died. Initial reports put the toll at 11.
It said the compensation - totaling $136 million - was so high "because Blackwater uses employees who disrespect the rights of Iraqi citizens even though they are guests in this country."
The U.S. military pays compensation money to the families of civilians killed in battles or to cover property damage, but at far lower amounts.
The United States has not made conclusive findings about the shooting, though there are multiple investigations under way and Congress has opened inquiries into the role of private security contractors. Last week, the FBI took over a State Department investigation, raising the prospect that it could be referred to the Justice Department for prosecution.
The FBI investigation is supposed to wrap up in days, not weeks, adds Palmer. But there is still a lot of work to do. CBS News' investigation turned up many witnesses who have not yet been interviewed.
The Iraqi government report said its courts were to proper venue in which to bring charges.
It said Blackwater's license to operate in Iraq expired on June 2, 2006, meaning it had no immunity from prosecution under Iraqi laws set down after the fall of Saddam Hussein in 2003.
The government report also challenged the claim that a decree in June 2004 by then-Iraqi administrator L. Paul Bremer granted Blackwater immunity from legal action in incidents such as the one in Nisoor Square. The report said the Blackwater guards could be charged under a criminal code from 1969.
U.S. Embassy spokeswoman Mirembe Nantongo said the diplomatic mission would have no comment on the report. Iraq's Interior Ministry spokesman, Abdul-Karim Khalaf, said the document was in American hands.
The report found that Blackwater guards also had killed 21 Iraqi civilians and wounded 27 in previous shootings since it took over security for U.S. diplomats in Baghdad after the U.S. invasion. The Iraqi government did not say whether it would try to prosecute in those cases.
The State Department has counted 56 shooting incidents involving Blackwater guards in Iraq this year. All were being reviewed as part of the comprehensive inquiry ordered by Secretary of State Condoleezza Rice.