The man, who was aged 13 at the time of the incident, will receive the payout after suffering severe spinal injuries which have left him paralysed.
Reports in the British media stressed that the compensation was higher than anything paid to British troops injured in Iraq.
The payout was "not a precedent, it is an exceptional case," the Ministry of Defence said.
The victim was wounded in September 2003 when a British soldier, whom he had befriended, accidentally dropped his gun, making the weapon go off.
The Iraqi later moved to Britain where he began legal action through the British courts.
The final settlement is dependent on a further High Court hearing, the reports said.
Last Mod: 15 Nisan 2008, 13:52