The London-based firm is the first British practice to publicly win a commission in the country since hostilities officially ended in 2003.
LDY, which brought international architect Ken Yeang on board last year, will team up with local consultants to draw up proposals for the entire urban area and to 'identify future growth zones' around Najaf - one of the holiest cities of Shi'a Islam.
A key feature of the work will be a city-centre action plan focusing on the impact of the millions of pilgrims who visit Najaf each year.
The city is about 160km south of Baghdad and remained relatively unscathed during the main conflict, although in 2004 it was the scene of fierce clashes between US troops and insurgents, in which many important shrines were damaged. Additionally, the city's old town and cemetery were badly hit.
The area is now regarded as having some potential for major development and, according to officials, is one of the safer places in Iraq.
However, LDY director Martin Crookston believes safety fears continue to deter British firms from working in the country. He said: 'There must be a lot of people for whom the security situation is having an effect.'
He admits that in the early stages of the one-year contract, he may have to hold meetings with the consultants on 'neutral ground' in the north of the country.
Yet with almost £11.25 billion ($20 billion) worth of work up for grabs, Crookston is surprised no one from Britain is vying for architectural commissions in Iraq.
He said: 'We don't know of any UK architects who are bidding to get work out there and yet there are so many opportunities.'
Appointed by the Iraqi Ministry of Municipalities and Public Works, the practice will work with Dr Al-Anfari, an expert on Najaf's architecture. Crookston is keen not to repeat mistakes of the past.
'There is 1,000 years of tradition here which needs to be drawn on properly,' he said. 'The interesting thing for me is how do you do that without it just being pastiche?'