Cash is being provided to rebuild cities like Mosul, which were left shattered after IS fought a bitter battle with coalition forces, including the UK.
Other money will be spent on rebuilding infrastructure, hospitals and schools destroyed in the fighting.
Of the 38 schools that have been rebuilt using UK funds, 28 have been in Mosul.
The Foreign Office says vulnerable people displaced by the fighting are in urgent need of clean water, medicine, shelter and wide variety of other essential services.
The move was announced as foreign minister Alistair Burt visited Iraq, which included a tour of the Kurdistan region where Christians were among groups targeted by IS, which is also called Daesh.
Foreign Secretary Jeremy Hunt has encouraged the Foreign Office to do more to help persecuted Christian communities around the world.
Mr Burt, minister for the Middle East, said: “The UK is a strong partner and friend of Iraq. We share a range of mutual and growing priorities which include security, development, foreign policy and trade.
“There is much to be celebrated about Iraq’s progress since the territorial defeat of Daesh in 2017.
Much of Mosul, including the historic al Nuri mosque, has been left in ruins
“But there is more to be done to help Iraq develop the strong, stable future, decided on by all Iraqis, that its people deserve.
“The UK remains committed to supporting Iraq to develop along non-sectarian lines, and we are particularly concerned about the rights and freedoms afforded to Christians and other minority faith groups.
“I am proud that we will be the first donor to the Iraq Reform and Reconstruction Fund. UK aid will provide vital support to the people of Iraq as they rebuild their lives, their businesses and their economic independence.”
About £16m of the cash will be allocated to a World Bank-run scheme to help Iraq’s government rebuild after the conflict with IS, and support the implementation of longer term economic reform.
A further £6.9m will go to a UN fund to stabilise Iraq, with the money going to improve hospitals, school, power plants and roads in areas previously occupied by IS.
And £10m will support the ongoing humanitarian response, providing drinking water, health facilities and other services to people living within temporary camps.
It brings the amount given to Iraq since 2014 to £252.5m in humanitarian support and more than £110m in stabilisation funding.
