Iraq said on Saturday it had agreed to pay $408 million to hundreds of thousands of Egyptian workers who fled Iraq because of Saddam Hussein's 1990-91 invasion of Kuwait.

Iraqi Foreign Minister Hoshiyar Zebari signed a memorandum of understanding during a visit to Egypt this week, his office said, under which Baghdad agreed to make the payments to resolve the cases known as "yellow remittances".

Hundreds of thousands of Egyptian workers are still owed back pay after fleeing Iraq following Saddam's invasion of Kuwait.

Saddam's invasion of Kuwait led to the 1991 Gulf War, when US-led forces drove Iraqi troops from Kuwait but left Saddam in power for another 12 years. US troops returned to topple Saddam in a second invasion in 2003 and stayed until last December.

Iraq has made an effort to resolve Gulf War-era disputes with other Arab states ahead of a March 27-29 summit of Arab leaders, the first time the Arab League has gathered in the Iraqi capital since the 1991 Gulf War.

Earlier this week Iraq reached a $500 million deal with Kuwait to resolve a dispute over aircraft and plane parts that Saddam's forces took during the invasion. That dispute had made it difficult for Iraqi Airways to fly to Western cities without risking the confiscation of its planes.

Prime Minister Nuri Al-Maliki's government is heralding the Arab League summit as the debut of post-Saddam Iraq at the centre of regional politics, following the withdrawal of US troops. – Reuters