The facility near Karbala, thought to be "smoking gun" evidence of Iraqi chemical weapons production, has turned out to contain pesticide.
Initial tests had reportedly detected traces of sarin, the powerful toxin that quickly affects the nervous system, after US marines guarding the facility at Hindiyah, 100km south of Baghdad, became ill.
In a separate find, marines claimed to have found a warehouse near the Baghdad Airport containing missiles ready to fire and loaded with warheads filled with mustard gas and sarin. No confirmation was available from the Pentagon.
"If the United States does not make any undisputed discoveries of forbidden weapons, the failure will feed already widespread scepticism abroad about its motives for going to war," the Wall Street Journal said yesterday.
As coalition forces battle for Baghdad, teams of soldiers in specialised mobile laboratories are searching for biological and chemical weapons behind the scenes.
One of the so-called "fox teams" was called on Sunday to a military site adjacent to a pesticide factory near Karbala where troops from the US 101st Airborne Division discovered barrels containing suspicious materials.
The detection equipment used on the ground is hypersensitive and generates many false alarms, said Mr Jonathan Tucker, an expert at the US Institute of Peace.
The head of the UN's nuclear watchdog body, Mr Mohamed ElBaradei, said any alleged weapons of mass destruction found in Iraq must be verified by UN agencies to ensure credibility.