The decision came Monday after the U.S.-led coalition handed over power in Iraq to an interim Iraqi government, two days ahead of the date previously set.
Kuwait's foreign ministry told the state-owned Kuwait News Agency the decision to restore relations has been made and an ambassador will be named later.
Kuwait's prime minister, Sheik Sabah Al Ahmed Al Sabah (search), was among the first Arab officials to congratulate Baghdad on the transfer of power. He said Kuwait was prepared to offer Iraqis the help they need in rebuilding their country.
This oil-rich state has been an ally of Washington since the 1991 Gulf War (search) that liberated it from Iraqi occupation. It was the launch pad for the war on Iraq that ended the dictatorship of Saddam Hussein last year.