Iraq's Finance Ministry has begun paying an initial $650 million to Iraqi Kurdistan for oil companies working in the autonomous region, Deputy Prime Minister Rosh Nuri al-Shawish told Reuters on Tuesday.

Baghdad and Kurdistan agreed last month to draw a line under a dispute over oil payments, after the latter pledged to continue exports and Baghdad said it would pay foreign companies working there.

Kurdistan has angered Baghdad by signing deals with foreign oil majors, such as Exxon and Chevron, contracts the central government rejects as illegal.

"The federal Finance Ministry has started transferring the first oil payment of $650 million to the Kurdish region," said Shawish, a Kurdish member of the central government negotiating team.

In April, Kurdistan halted shipments of its oil in protest over what it said were overdue payments from the central government to companies in the Kurdish region.

It later resumed shipments, but threatened to cut them off again if there was no agreement on payment.

Kurdish Energy Minister Ashti Hawrami said on Sunday payments would be transferred to the autonomous region that same day, offering hope the long-running conflict is easing.

The oil contracts row is part of a broader battle between the Baghdad government and Kurdistan over oil rights, territory and regional autonomy that is straining Iraq's uneasy federal union. – Reuters