Iraq has approved an oil exploration deal with a Kuwait Energy-led group, a senior oil official said, to take the place of Turkey's state-owned TPAO, which the cabinet decided to expel.

Facing souring diplomatic ties with Turkey, Iraq asked Kuwait Energy last year to acquire TPAO's shares in exploration block 9. At the time, the Kuwaiti company held a 30 per cent stake.

"Kuwait Energy has acquired the stake of the Turkish company TPAO, and now it's holding 70 per cent of the contract, and Dragon Oil will hold 30 per cent," Abdul-Mahdy al-Ameedi, director of the ministry's contracts directorate, said in an interview.

Iraq's oil ministry plans to sign the final deal on January 27, Ameedi said.

Baghdad has been angered by Ankara's moves to forge closer ties with the Kurdistan Regional Government in northern Iraq, which is in a dispute with the federal government over oil and land rights.

Turkey and Iraq have also accused each other of inciting sectarian tensions and have summoned each others' ambassadors in tit-for-tat manoeuvres.

The contract provides the consortium rights to explore and develop oil block 9, which is located in Iraq's southern Basra province.

Opec member Iraq is expected to be the world's biggest source of new oil supplies over the next few years. It plans to open up more rounds for oil and gas blocks for auction.

A handful of international companies won bids last May at Iraq's fourth energy auction, which had a poor showing because of tough contract terms drawn up by Baghdad.

Iraq has offered foreign companies less attractive service agreements, in which they receive a fee rather than the Kurdistan's production-sharing deals, which allow them to profit jointly from the output.-Reuters