Iraq's defence minister told lawmakers at a crisis meeting that Iraq had "no intention" of re-deploying badly-needed troops from the centre and south of the country to carry out such a mission, according to a top prime ministerial aide.

Turkish Prime Minister Recep Tayyip Erdogan has threatened an incursion into Iraq unless Baghdad clamps down on the Kurdistan Workers' Party (PKK) rebels on its territory and turns over its leaders.

Iraqi Defence Minister Abdel Qader al-Obeidi appeared to put the onus on the American military to take action by saying that security in Iraq was the responsibility of the US-led coalition forces.

Prime Minister Nuri al-Maliki's top aide Sami al-Askari told AFP that al-Obeidi had insisted Iraqi troops could not be spared as they were needed for maintaining security in the rest of the country.

He also said Iraqi Foreign Minister Hoshyar Zebari had announced that he was expecting his Turkish counterpart Ali Babacan in Baghdad for crisis talks on Tuesday. The timing of the visit was not immediately confirmed by Ankara.

"Zebari also said in parliament that an Iraqi delegation is expected to visit Turkey soon to continue the dialogue with Ankara," said al-Askari.

The special session of the Iraqi parliament was called after 12 Turkish soldiers and 32 rebels were killed in heavy clashes over the border in Turkey on Sunday, further raising tensions between Baghdad and Ankara.

Turkey says the fighting erupted in a mountainous region in the southeastern province of Hakkari after PKK rebels infiltrated from northern Iraq and attacked a patrol.

The Turkish military said Monday that eight soldiers were missing after the fighting following rebel claims that they had captured an undisclosed number of troops.

Despite pressure from Washington and much of the international community to hold off on any incursion, Erdogan said his government was ready to use parliamentary authorisation -- obtained on Wednesday -- to send troops into Iraq.

Hundreds of mostly Kurdish demonstrators holding banners in Arabic, Kurdish and English, rallied in the oil-rich northern city of Kirkuk against the Turkish threat, shouting "No, No Turkey! No, No to aggression!".

"We came here in support of the Kurdish government's rejection of the Turkish threats," said Shakiba Khorshid, a demonstrator in her 40s.

In the main Kurdish cities of Arbil and Sulaiymaniah, residents said they feared the economic cost of any Turkish military action and some had even started stockpiling food.

"The continuing Turkish threats may result in closing the borders which brings about large (economic) damage," said Bahaa al-Din Muhi al-Din, the 43-year-old owner of a company importing products from Turkey to Sulaimaniyah.

"It is true the borders have not been closed yet, but if it happened it would result in large damages."

The PKK, meanwhile, threatened to disrupt Iraq's oil supplies through Turkey if they were attacked by the Turkish military.

"The oil pipleine between Turkey and Iraq inside the Turkish territories will be on of our targets," rebel leader Murad Qiralian said.

Iraqi President Jalal Talabani rejected on Sunday the idea that Kurdish rebel leaders could be rounded up and handed over as Erdogan has demanded but told the PKK to down arms or leave.

Ankara says some 3,500 PKK fighters are based in northern Iraq where they are able to obtain weapons and are supported by Iraqi Kurdish leaders, a charge the Iraqi Kurdish administration strongly denies.

Faced with rising rebel violence, Turkey says it is running out of options other than military action, with neither the United States nor Iraq doing enough to stamp out the rebel bases.

More than 37,000 people have been killed since 1984 when the PKK took up arms fighting for self-rule in Turkey's mainly Kurdish southeast.