The group of five people built two facilities in Baghdad to produce sarin and mustard gas, using instructions from another al-Qaeda group, spokesman Mohammed al-Askari told a news conference.
The members of the cell were prepared to launch attacks domestically, and also had a network to smuggle the toxins to neighbouring countries, and further afield to Europe and North America, Askari said.
The arrest of the cell members was possible because of cooperation between Iraqi and foreign intelligence services, he added.
The United Nations said last month that sarin nerve gas may have been used by rebels fighting to overthrow President Bashar al-Assad in neighbouring Syria.
Iraq and Syria share a 600-kilometre border, and officials have warned that al-Qaeda-linked Sunni militants opposed to Syrian President Bashar al-Assad and the Shi'ite-led government in Baghdad have set up camp in Iraq's western desert region.
Al-Qaeda front group the Islamic State of Iraq is still active in the country, launching regular attacks on government and civilian targets.
So far, the group has largely refrained from waging violence outside Iraq, but earlier this year it publicly said it was linked to Syria's Al-Nusra Front, a jihadist group fighting the Assad regime.
Saddam Hussein's forces used poison gas to attack the Kurdish town of Halabja in 1988, killing an estimated 5,000 people.
