An official from the Kurdistan Democratic Party (KDP), which rules Iraq's autonomous northern region, confirmed it had launched legal action after its officials were accused of taking bribes.

The Journalistic Freedoms Observatory on its website said it was "concerned" by the one billion dollar claim against the Roznama weekly newspaper and described it as "the biggest compensation demand in Iraqi press history."

The lawsuit follows a report in Roznama on July 20 about oil smuggling which accused the KDP, led by Kurdish regional President Massud Barzani, of taking millions of dollars from smuggling operations.

"We sued them because they accused us of corruption and they have to present their proof," said an official from Barzani's office on condition of anonymity.

"If they cannot present proof it is our legal right to have compensation."

The journalist who wrote the report, Serwan Rasheed, who is being sued jointly with the publisher of the newspaper, whose editorial line backs an opposition party, said he was "shocked" by the lawsuit but defended his story.

"I depended on several sources when I wrote this report... if they say the information is wrong let them give the real information to the people," said Rasheed.