The soldiers died when a homemade bomb exploded as their boat passed it on the Shatt Al-Arab waterway in the southern city of Basra at 12:50 p.m. local time (0950 GMT), seriously injuring three others, the defence ministry said.
On the day Britain traditionally remembers the servicemen and women who gave their lives in two world wars and other conflicts, Defence Secretary Des Browne said the deaths were a "stark reminder" of the risks troops faced in Iraq.
"This terrible incident reinforces in our minds the sacrifice made by the brave men and women of our armed forces," he added in a statement.
The deaths bring the total number of British troops killed in Iraq since the start of the US-led invasion in March 2003 to 125 and marked another bloody day in the violence-wracked country.
At 11:00 am (1100 GMT) in London, the queen led thousands of veterans and war widows in solemn tribute to the fallen in a two minutes' silence at the Cenotaph war memorial in the heart of the capital's government district.
The queen, suffering from a bad back, crouched gingerly as she laid the first wreath of blood-red poppies at the base of the simple white stone monument.
She was then followed by the country's political leaders, including Prime Minister Tony Blair -- taking part as the country's premier for the last time and amid increasing opposition to his decision to back US action in Iraq.
Thousands of elderly veterans, with medals pinned to their scarlet coats or other uniforms, then marched past the Cenotaph to the strains of military music.
Among them were the widows and children of British servicemen killed in Iraq and Afghanistan, though the solemn event masked how much angry debate these latest conflicts have stirred nationwide.
The Ministry of Defence confirmed that some of the widows and relatives of the 41 British soldiers killed in Afghanistan since the US-led war began there in late 2001 also took part.
Iraq war widow Raqual Harper-Titchener, 31, laid a wreath of autumn leaves -- rather than the poppies symbolising World War I battlefields -- on behalf of the families and friends of troops killed since World War II.
The names of the 16,000 British soldiers killed since 1945 will now be engraved on a new armed forces memorial in Staffordshire, west central England, the MoD said. Unlike the World War memorials nationwide, there had been no place recording those names.
"It's an honour and a privilege to be here," said Harper-Titchener, the mother of a six-year-old son and two-year-old daughter, who was born shortly after her father's death.
Her husband, Major Matthew Harper-Titchener, the commanding officer of 150 Provost Company The Royal Military Police, was killed in Iraq on August 23, 2003.
The event was the culmination of a series of solemn ceremonies held at home and abroad, including in Iraq and Afghanistan on Armistice Day itself, November 11.
Meanwhile, the relentless debate in Britain over Iraq continued after Blair's office said Saturday that the prime minister would give evidence next week to a US bipartisan committee looking at future policy in Iraq.
But William Hague, the foreign affairs spokesman for Britain's opposition Conservative Party, said on television that hopes of involving Iran and Syria in formulating a new policy to stabilise Iraq could prove "naive".
The bipartisan committee headed by former US secretary of state James Baker has reportedly proposed such an approach.

Copyright AFP (Agence France-Presse), 2006