Kurdish authorities in Arbil suspended exports of oil via central government pipelines in April as a result of a payment dispute, restarting them last month as part of a goodwill gesture that is due to expire on September 15.

But on Tuesday, Iraqi ministers considered a cabinet report that said the suspension of exports, along with lower-than-expected levels of exports in months previous to April, equalled more than $3 billion is lost income.

"The cabinet decided to give the Kurdistan regional government one week to come and defend themselves," said Ali Mussawi, spokesman for Prime Minister Nuri al-Maliki.

"If they do not, these funds will be cut from their budget."

Kurdistan had originally halted exports on April 1 over $1.5 billion it said was owed to foreign oil companies working in the region that Baghdad had allegedly withheld.

Baghdad and Arbil are at odds over issues including Kurdistan's refusal to seek approval from Baghdad for oil contracts it has awarded to foreign firms, and over a swathe of disputed territory in northern Iraq.

The central government says all oil deals must go through the federal oil ministry, and it regards any that do not as illegal.