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FIFA has suspended Iraq from international competition for one year.
The decision comes after the Iraqi government dissolved the country's National Olympic Committee as well as various sports federations.
The world governing body is in Sydney for its executive committee meeting.
FIFA has agreed to lift the ban if the Iraqi government reverses its decision by midnight on Thursday, Australia time.
If not, Iraq, who became Asian champions in 2007, will miss the rest of the 2010 World Cup qualifiers and be unable to participate in the Beijing Olympics later this year.
Ironically, Iraq are due to face Australia this Saturday for a qualification match for South Africa 2010 World Cup.
"... I'm very confident, more than hopeful, that the situation will change,” FIFA chief Sepp Blatter told reporters before the ban was announced.
"Can you imagine the reaction of the (Iraqi) people if we had to suspend them from football? I think the minister should think twice about what he has done."
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Breaking News: FIFA Lift Ban On Iraq
With three days to go before a vital 2010 World Cup qualifier, FIFA has provisionally lifted the one year international ban on Iraq.
Iraq will now be able to face Australia on Sunday in a qualification match for the 2010 World Cup. The two teams meet again six days later.
“This is great news,” Football Federation Australia chief executive officer Ben Buckley said in a statement.
“We’re truly delighted that the Iraqi Government, the Iraq FA and FIFA have sorted out the issues between them and the Socceroos and Iraq can get on the field to play this important World Cup qualifying match on Sunday.”
FIFA suspended Iraq on Monday after the Iraqi government dissolved the country's National Olympic Committee as well as various sports federations.
Subsequently, the world governing body received a letter from Baghdad confirming that Iraqi Football Association was exempt from the dissolution decree.
FIFA also announced that it still has concerns about political interference in Iraqi football and the decision to lift the ban is a conditional and provisional one.
Iraq, with one point from two Group One games, need a result in Brisbane. Australia sit in top spot with four points.
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