The talks, proposed by Iraqi President Jalal Talabani, "could be important with respect to sharing intelligence and coordinating military activity," Babacan told a joint press conference with visiting Spanish counterpart Miguel Angel Moratinos.

Ankara has long complained that the Kurdistan Workers' Party (PKK), waging a bloody separatist campaign in southeast Turkey since 1984, uses bases in the mountains of northern Iraq as a springboard for cross-border attacks.

It has often accused the Iraqi Kurds of tolerating and even aiding the PKK, listed as a terrorist group by Turkey and much of the international community, but has said it will still pursue dialogue with them to resolve the problem.

"We have passed an important threshold and my colleagues are now having talks with officials on various levels at the local administration in the north of Iraq," Babacan said.

The Turkish army has stepped up operations against the PKK -- both inside Turkey and in northern Iraq -- since October 3 when militants attacked a Turkish border outpost, killing 17 soldiers.

Earlier this month, parliament extended by one year the government's mandate to order cross-border military strikes against the PKK, which has been in effect since October 17, 2007.

The PKK took up arms in 1984, sparking a conflict that has claimed an estimated 44,000 lives.