Kurdish president Massud Barzani and Iraqi President Jalal Talabani opened a ceremonial valve at the event while a live broadcast showed workers at the Taq Taq oil field in Arbil province turning on the pumps.

"It is a historic date, a giant step," said Barzani at a lavish ceremony in Arbil. "We are proud of this success, and this achievement will serve the interests of all Iraqis, especially the Kurds."

Many hope the joint project between the autonomous region and Baghdad may pave the way to ending bitter domestic feuds over Iraq's oil wealth.

"These contracts are legal, constitutional and legitimate and they are in the interests of Iraqi people," said Talabani, a Kurd who, however, was not accompanied by any non-Kurdish member of the Baghdad government.

"We all love the Iraqi people and the Kurdish people are an important part of the Iraqi people, who made sacrifices to free Iraq from dictatorship," Talabani added.

Initial exports will be around 40,000 barrels per day from Taq Taq and another 50,000 bpd from the Tawke field in Dohuk, with maximum combined output projected to reach 250,000 bpd sometime next year.

Disagreements over oil rights, especially between Baghdad and Arbil, have hamstrung exploitation of much of Iraq's massive proven reserves and long-delayed hydrocarbons law, prompting fierce criticism by the Kurds.

Baghdad has repeatedly said that it is opposed to Arbil signing its own contracts, a position which Kurdish officials have thumbed their nose at by signing dozens of agreements with foreign firms.

Regional natural resources minister Ashti Hawrami railed at Baghdad's obstructionism and vowed Kurdistan will continue seeking its own partners without the approval of the central government.

"Iraq has had a revenue shortfall of 10 billion dollars due to the incompetence of Iraq's ministry oil," Hawrami said in a speech.

"We signed 30 contracts and Baghdad said at the beginning that we would not be able to sign any because no foreign company would develop our oil," he said, adding that the oil ministry only "put up obstacles" to developing Iraq's crude.

Hawrami noted that investment in Taq Taq was 500 million dollars on expected production of 180,000 bpd, far less than the two-billion-dollar price tag of the Chinese-run Al-Ahdab field in central Iraq that will produce 100,000 barrels.

The Taq Taq project is being run by Turkey's Genel Enerji in partnership with Calgary-based Addax Petroleum. The Tawke project to the northwest is operated by Norwegian oil firm DNO.

Exports from Tawke will link with the Iraq-Turkey main export pipeline at the border town of Fishkhabur, while crude from Taq Taq will be trucked from Arbil before connecting with the Iraq-Turkey pipeline.

Terms of the Taq Taq deal are for Baghdad to receive 88 percent of revenues of which the Kurd region will get back 17 percent. Genel Enerji and Addax will share 12 percent, a Genel Enerji official said.

A DNO official said terms of the Tawke deal are quite similar to those for the Taq Taq field.

Earlier this month Kurd officials announced an eight billion dollar plan to develop Kurdish gas fields with four European and two United Arab Emirates partners that could later supply the EU's flagship Nabucco pipeline.

Iraq's oil minister Hussein al-Shahristani responded by calling the deal illegal.

Iraq is in dire need of revenue to rebuild its shattered economy, especially after oil prices tumbled from a peak of 147 dollars a barrel last July to barely 32 dollars in December, putting huge pressure on Iraq's budget.

In Asian trade on Monday, New York's main futures contract, light sweet crude for July delivery, rose 96 cents to 67.27 dollars a barrel.

Brent North Sea crude for delivery in July advanced 1.04 dollars to 66.56 dollars.