Al-Masri is presumed to be the successor of terrorist leader Abu Musab al-Zarqawi, who was killed by an American bomb in early June.
Al-Masri is an Egyptian explosives expert who trained in Usama bin Laden's camps in Afghanistan and was an associate of al-Zarqawi. Al-Masri has been fighting in Iraq since at least 2003 and was engaged in the battle of Fallujah in 2004.
Rice's agency is offering the money to encourage people with information about al-Masri's location to come forward, said spokesman Adam Ereli.
The State Department says people with tips should contact its Rewards for Justice program, any U.S. embassy or consulate or any U.S. military commander in Iraq.