BAGHDAD - The Iraqi army launched an operation to retake Kurdish-held positions around the disputed oil city of Kirkuk on Friday amid a bitter row with the Kurds over a vote for independence last month.
A senior Kurdish official said thousands of heavily armed fighters had been deployed to resist the offensive "at any cost" and called for international intervention with the federal government in Baghdad to prevent the confrontation worsening.
The Iraqi army and the Kurdish peshmerga have been key allies of the US-led coalition in its fight against the Islamic State (IS) group and the threat of armed clashes between them poses a major challenge for Western governments.
Ethnically divided but historically Kurdish-majority Kirkuk is one of several regions that peshmerga fighters took over from the Iraqi army in 2014 when the jihadists swept through much of northern and western Iraq.
Baghdad is bitterly opposed to Kurdish ambitions to incorporate the oil-rich province in its autonomous region in the north and has voiced determination to take it back.
"The Iraqi armed forces are advancing to retake their military positions that were taken over during the events of June 2014," an army general said by telephone, asking not to be identified.
He said federal troops had already taken one base west of Kirkuk on Friday morning after peshmerga fighters withdrew during the night without a fight.
- 'We will fight' -
The peshmerga's Kirkuk commander, Sheikh Jaafar Mustafa, said his forces had withdrawn from areas they had recently entered during fighting against IS in the west of the province.
"We withdrew to our lines in the area around Kirkuk and we will defend the city in the event of an attack," he told a news conference.
"If the Iraqi army advances, we will fight."
Kurdish media reported that the peshmerga had withdrawn from around 72 square kilometres (28 square miles) of territory.
Sheikh Mustafa said there had been an attempt to negotiate an agreed disengagement of forces through Iraqi Prime Minister Haider al-Abadi but it had been overruled by field commanders.
"We informed the military commanders on the ground that we were in touch (with Abadi) and that he said our problems would be settled by dialogue within 48 hours," he said.
"But the military commanders retorted that they had orders to advance in these areas and that they were not worried about statements from Mr Abadi."
Spokesmen for the prime minister declined to comment when contacted.
A top aide to Iraqi Kurdish leader Massud Barzani vowed that peshmerga forces would defend their positions "at any cost".
"Thousands of heavily armed peshmerga units are now completely in their positions around Kirkuk," Hemin Hawrami said.
"Their order is to defend at any cost."
The Kurdish authorities accused the Popular Mobilisation Forces (PMF) -- paramilitary units dominated by Iran-trained Shiite militia -- of massing fighters in two mainly Shiite Turkmen areas south of Kirkuk in readiness for an attack.
Hawrami urged the international community to intervene and call on the Iraqi prime minister to "order PMF to pull back if he can or if they listen to him".
The PMF published photographs of one its fighters making a victory sign in front of a Kurdish flag.
In Kirkuk, long queues formed at petrol stations Friday as motorists rushed to fill up.
In Kurdish neighbourhoods of the city, witnesses said there were armed civilians on the streets.
- Lucrative oil fields -
The surge in tensions comes two weeks after Kurdish voters overwhelmingly backed independence in a non-binding referendum that the federal government condemned as illegal.
Polling was held in the three provinces that have long formed an autonomous Kurdish region as well as several other Kurdish-held areas, including Kirkuk.
Baghdad continues to reject decades-old Kurdish ambitions to incorporate the city and other historically Kurdish-majority areas in their autonomous region.
The Kurdistan Regional Security Council said its intelligence reports suggested that Iraqi troops and armour were preparing an operation to taker over Kurdish-held oil fields.
The Kurds export an average of 600,000 barrels of oil per day under their own auspices, of which 250,000 bpd come from the three fields they control in Kirkuk province.
Abadi has repeatedly denied any intention of ordering an assault on his own people but tensions have been high on the front line for days.
On Thursday, Kurdish forces briefly blocked two roads into the autonomous region from second city Mosul for fear of an attack.
The federal government severed ties between Iraqi Kurdistan and the outside world after the independence referendum by cutting international air links.
It said there could be no negotiations on wider autonomy until Kurdish leaders annul the vote and commit to remaining part of Iraq.