Guests watch U.S. marines raise the American flag during a ceremony marking the opening of the embassy in Baghdad. ((Hadi Mizban/Associated Press))

The United States dedicated its new embassy in Baghdad on Monday, a fortress-like compound that is the largest embassy ever built by the superpower.

Speaking at the inauguration ceremony, U.S. Ambassador Ryan Crocker said the $700-million embassy is evidence of America's long-term friendship with Iraq.

"From this embassy in the years to come, we look forward to building our partnership and contributing to the future," Crocker said.

During the ceremony, U.S. marines raised the American flag over the adobe-coloured building located in the heart of the Green Zone, a walled-off section of the city under heavy security.

Iraqi President Jalal Talabani and U.S. Deputy Secretary of State John Negroponte were among about 1,000 guests in attendance.

Talabani praised President George W. Bush's decision to invade Iraq in 2003 and topple the regime of Saddam Hussein, who was executed two years ago. About 146,000 U.S. troops are currently deployed in Iraq.

"The building of this site would not be possible without the courageous decision by President Bush to liberate Iraq," said Talabani, a Kurd. "This building is not only a compound for the embassy but a symbol of the deep friendship between the two peoples of Iraq and America."

More than 1,200 U.S. diplomats, service members and government officials work and live on the 42-hectare compound, an embassy press release said.

U.S. diplomats and military officials moved into the embassy Dec. 31 after vacating Saddam's Republican Palace, which they occupied when they captured Baghdad in April 2003. Construction of the compound began in 2005 and was completed last year.

"The largest American Embassy structure to date, its scale reflects the importance of the U.S.-Iraq bilateral relationship," the embassy press release said.

The palace will now seat the Iraqi government and the office of Prime Minister Nouri al-Maliki, who did not attend Monday's ceremony because he was in Iran.

With files from the Associated Press