BAGHDAD (Reuters) - The Iraqi government wants U.S. security firm Blackwater to pay $8 million in compensation to each of the families of 17 people killed in a shooting last month, a senior government source said on Tuesday.

The source said the figure was roughly in line with compensation paid by the Libyan government to the families of the 270 people killed in the 1988 Lockerbie airline bombing over Scotland.

“We want them to pay $8 million for each family,” the source told Reuters. “The same level as the compensation for the Lockerbie victims.”

Blackwater, which has a U.S. State Department contract to protect its diplomats in Baghdad, has been told of the demand, the source said.

It was unclear what Blackwater’s response was and the North Carolina-based firm did not immediately respond to e-mailed questions from Reuters.

In Washington, State Department spokesman Sean McCormack declined comment on how much compensation its contractor had been asked to pay for the September 16 shootings.

“Obviously, the issue of what some refer to as bereavement payments -- or a number of different names for them -- is an issue of some sensitivity that we are taking a look at,” McCormack told reporters.

Blackwater Chief Executive Erik Prince testifies before the House Oversight and Government Reform Committee on security contracting in Iraq and Afghanistan on Capitol Hill in Washington, October 2, 2007. The Iraqi government wants security firm Blackwater to pay $8 million in compensation to each of the families of 17 people killed in a shooting, a senior government source said on Tuesday. REUTERS/Larry Downing

“It is an issue that commonly turns up when you have security incidents in which there is a loss of life. As with other previous incidents throughout Iraq, civilian or military, we are taking a look at the issue.”

There are four separate investigations into Blackwater’s actions in Iraq and McCormack cautioned people about “jumping to conclusions” on the private security contractor’s conduct.

Far more often, he said there was a loss of innocent life from the actions of al Qaeda and other extremist groups in Iraq than security contractors working for the U.S. government.

Iraqi government spokesman Ali al-Dabbagh said on Sunday the investigation set up by Prime Minister Nuri al-Maliki had found Blackwater “deliberately killed” the 17 people in the September 16 shooting in western Baghdad.

Blackwater has said its guards responded lawfully to a hostile threat against a U.S. State Department convoy it was guarding but Dabbagh said the investigation also had found there was no evidence they had come under fire.

The incident caused outraged among Iraqis who see security contractors like Blackwater as private armies that act with impunity.

Blackwater employs about 1,000 people in Iraq. Its founder, former U.S. Navy SEAL Erik Prince, told a congressional hearing last week his men had come under small-arms fire and “returned fire at threatening targets.”

U.S. Secretary of State Condoleezza Rice last Friday ordered tighter controls on Blackwater, including putting cameras on the company’s vehicles and ensuring diplomatic security agents accompany and monitor each convoy.

A Libyan intelligence agent was found guilty in 2001 of the bombing of a Pan Am flight over Lockerbie, which killed 270 people including 189 Americans.

In March 2003, Libya reached a political settlement with the United States and Britain to accept civil responsibility for the bombing, with Libya agreeing to pay about $2.7 billion in total compensation.