US troops used white phosphorus as a weapon in last year's offensive in the Iraqi city of Falluja, the US has said.
Falluja suffered great damage during the offensive
"It was used as an incendiary weapon against enemy combatants," spokesman Lt Col Barry Venable told the BBC - though not against civilians, he said.
The US had earlier said the substance - which can cause burning of the flesh - had been used only for illumination.
BBC defence correspondent Paul Wood says having to retract its denial is a public relations disaster for the US.
Col Venable denied that white phosphorous constituted a banned chemical weapon.
Washington is not a signatory to an international treaty restricting the use of the substance against civilians.
The US state department had earlier said white phosphorus had been used in Falluja very sparingly, for illumination purposes.
Col Venable said that statement was based on "poor information".
The US-led assault on Falluja - a stronghold of the Sunni insurgency west of Baghdad - displaced most of the city's 300,000 population and left many of its buildings destroyed.
Col Venable told the BBC's PM radio programme that the US army used white phosphorus incendiary munitions "primarily as obscurants, for smokescreens or target marking in some cases.
"However it is an incendiary weapon and may be used against enemy combatants."
Spontaneously flammable chemical used for battlefield illumination
Contact with particles causes burning of skin and flesh
Use of incendiary weapons prohibited for attacking civilians (Protocol III of Convention on Certain Conventional Weapons)
Protocol III not signed by US
And he said it had been used in Falluja, but it was a "conventional munition", not a chemical weapon.
It is not "outlawed or illegal", Col Venable said.
He said US forces could use white phosphorus rounds to flush enemy troops out of covered positions.
"The combined effects of the fire and smoke - and in some case the terror brought about by the explosion on the ground - will drive them out of the holes so that you can kill them with high explosives," he said.
San Diego journalist Darrin Mortenson, who was embedded with US marines during the assault on Falluja, told the BBC's Today radio programme he had seen white phosphorous used "as an incendiary weapon" against insurgents.
However, he "never saw anybody intentionally use any weapon against civilians", he said.
White phosphorus is highly flammable and ignites on contact with oxygen. If the substance hits someone's body, it will burn until deprived of oxygen.
Globalsecurity.org, a defence website, says: "Phosphorus burns on the skin are deep and painful... These weapons are particularly nasty because white phosphorus continues to burn until it disappears... it could burn right down to the bone."
A spokesman at the UK Ministry of Defence said the use of white phosphorus was permitted in battle in cases where there were no civilians near the target area.
But Professor Paul Rogers, of the University of Bradford's department of peace studies, said white phosphorus could be considered a chemical weapon if deliberately aimed at civilians.
He told PM: "It is not counted under the chemical weapons convention in its normal use but, although it is a matter of legal niceties, it probably does fall into the category of chemical weapons if it is used for this kind of purpose directly against people."
When an Italian TV documentary revealing the use of white phosphorus in Iraq was broadcast on 8 November it sparked fury among Italian anti-war protesters, who demonstrated outside the US embassy in Rome.