Nato defence ministers are expected to agree a major increase in troop numbers in Iraq at a meeting this week.
The move could potentially cement a broader role for the Atlantic alliance in the Middle East, senior officials and diplomats said.
The number of Nato troops could increase from 500, to between 4,000 and 5,000, four diplomats told Reuters.
Nato Secretary General Jens Stoltenberg said on Monday ministers were expected to agree to the expanded mission during a virtual meeting on Wednesday and Thursday but did not give details on the size of the new force.
He said there would be more allied personnel working in more security institutions across Iraq.
"The mission will expand gradually, in response to the situation," he said.
Rocket attack on Erbil airport - in pictures
He added that this came at the request of the Iraqi government.
Nato has had a non-combat, "train-and-advise" mission in Baghdad since October 2018, but plans to expand it were delayed, in part by Covid-19 and also due to concerns about regional stability after a US drone killed a top Iranian commander in Baghdad on January 3, 2020.
Earlier expansion plans were mainly in response to a demand by then-US President Donald Trump for Nato to do more in the Middle East.
This time, Iraqi Prime Minister Mustafa Al Kadhimi, a former intelligence chief and US ally who took office in May, is eager to have a greater Nato presence in the country at a time of rising insecurity, diplomats told Reuters.
It is also just months before the Iraqi government plans to hold early elections in the face of mass protests that have seen security forces use live ammunition and tear gas canisters to kill and maim hundreds of demonstrators.
A rocket attack on US-led forces in northern Iraq killed a civilian contractor on Monday and injured a US service member, in the deadliest such incident in almost a year.
Paramilitary groups aligned with Iran in Iraq and Yemen have launched attacks against the US and its Arab allies in recent weeks, including a drone attack on a Saudi airport and a rocket attack on the US embassy in Baghdad.
Nato will likely take over some of the training activities carried out by the US-led coalition against ISIS.
The mission, involving allies including Britain, Turkey and Denmark and led by a Danish commander, is seen as more acceptable to Iraqis than a US training force, diplomats said.
Currently, the Nato mission only trains and advises members of the Iraqi security institutions and forces who are under the direct control of the Iraqi government.