UK-listed oil exploration firm Gulf Keystone has restarted production in Kurdistan, ending a half-year hiatus since the regional government asked operators there to stop pumping, industry sources said.

The company is now producing 5,000 to 7,000 barrels of oil per day (bpd) for sale on the domestic market and is developing its Shaikan field to raise output to around 40,000 bpd by mid-2013, some of which may be exported, the sources said.

"They are doing 5,000 bpd-plus to the local market," one of the sources said.

The Shaikan field is Gulf Keystone's prize asset, from which it aims to produce as much as 150,000 bpd by 2015.

An autonomous region since 1991, Iraqi Kurdistan is often touted as one of the final frontiers for on-shore oil exploration and has signed contracts with foreign majors such Exxon Mobil, Chevron and Total.

But a long-running dispute with Baghdad, which rejects the deals as illegal, earlier this year led to a disruption in payments to operators in the northern region.

Kurdistan says its right to grant contracts to foreign companies is enshrined in the Iraqi constitution, which was drawn up following the 2003 invasion that ousted Sunni dictator Saddam Hussein.

The Kurds have since passed their own oil and gas law, whilst disagreements among Iraq's Sunni, Shi'ite and Kurdish factions in the national power-sharing government have delayed a long-awaited hydrocarbons law.-Reuters