Jerry Shumate, 21, admitted aggravated assault and conspiracy to obstruct justice in connection with the killing of 52-year-old Hashim Ibrahim Awad in Hamdania outside Baghdad on April 26.
Military prosecutors said Shumate was part of a gang of eight servicemen who took Awad from his home before shooting him and staging a cover-up to make it look as if he was an insurgent planting roadside bombs.
The killing is one of a series of incidents that have tarnished the reputation of US troops in Iraq.
Murder and kidnapping charges against Shumate were dismissed after a deal with prosecutors at the Marines' Camp Pendleton base in southern California which will see him testify against other soldiers awaiting trial.
Although the maximum sentence Shumate could face is 15 years in custody, the stiffest penalty received so far among the three other servicemen who have struck plea deals has been 21 months.
Marine Tyler Jackson, 23, pleaded guilty last week to conspiracy and aggravated assault and was sentenced to 21 months in confinement.
John Jodka, 20, also pleaded guilty and was sentenced to 18 months in custody while Navy medic Melson Bacos pleaded guilty to kidnapping, conspiracy to kidnap and making false statements in October. He was jailed for one year.
Squad leader Lawrence Hutchins and three other Marines -- Robert Pennington, Trent Thomas and Marshall Magincalda -- are also charged in connection with Awad's death.

Copyright AFP (Agence France-Presse), 2006