The Australian Defence Forces did not reveal in which country the soldier was when Sunday's accident occurred, but said he died after being struck by a vehicle.
The soldier, Warrant Officer Class 2 David Russell Nary, from the Special Air Service Regiment had enlisted in the military in 1981 and joined special forces eight years later, serving in the Sinai, East Timor and Afghanistan.
Around 1,320 military personnel are deployed under Operation Catalyst, Australia's contribution to the rehabilitation and reconstruction of Iraq.
The death is the first of an Australian soldier serving under Australian command while deployed to the Middle East since the war in Iraq began.
The only Australian serviceman killed so far in Iraq was serving with the British Royal Air Force at the time of his death.
"At times like these we need to be strong and to offer our full support to the family and friends of the deceased soldier," said the defence force's Air Chief Marshal Angus Houston in a statement.
"Until the incident has been investigated fully, it would be inappropriate of me to provide details of the circumstances surrounding this tragic accident.
"I can say, however, the team was involved in a routine training activity and during that activity the soldier was struck by a vehicle."
Australian Prime Minister John Howard, who has been a staunch ally of US President George W Bush in the war in Iraq, said the incident was a "tragic accident".
"This man had a wonderful career with the SAS and he was an outstanding serviceman," Mr Howard said.
"The loss of anybody in these circumstances is very tragic, and I am very saddened by what's happened."