"The crisis erupted after the Iraqi army entered without coordinating with Kurdish leaders and ordered the Kurdish parties to vacate the public buildings in Khanaqin," said Fuad Hussein, a senior Kurdish official.

Khanaqin, northeast of Baquba in the central province of Diyala, is a flashpoint district subject to frequent attacks by insurgents.

The district, which includes a string of villages and some of Iraq's oil reserves, is home to about 175,000 people, most of them Kurdish Shiites.

During the Arabisation policy of Saddam Hussein in the 1980s, a large number of Kurdish Shiites were displaced by force from Khanaqin. They started returning after the fall of Saddam in 2003.

In June 2006, the local council of Khanaqin proposed that the district be integrated into the autonomous Kurdish administration in northern Iraq.

Tension which had been simmering since the local council issued its demand was given fresh impetus mid-August when the defence ministry ordered Kurdish peshmerga forces who had been providing security in Khanaqin to be replaced by Iraqi troops.

Iraqi Prime Minister Nuri al-Maliki then issued an order that all public buildings occupied "illegally" across Iraq must be vacated -- prompting the latest demand that officials from the Kurdish parties leave their offices.

The president of the Kurdish administration, Massud Barzani, held talks with Maliki in a bid to defuse the crisis, a statement from the regional government said.

"We must continue the dialogue with all political parties to prevent those who want to derail the democratic process," the statement quoted Barzani as saying.

A Kurdish delegation was also set to meet Maliki either Saturday or Sunday to "resolve the crisis," said Mahmud Sinjawi, an official in Iraqi President Jalal Talabani's party, the Patriotic Union of Kurdistan.

"The peshmergas left the place (Khanaqin) on August 18 and were replaced by the Iraqi forces which has angered the people who demonstrated on August 25 against the presence of the Iraqi army," Sinjawi said.