A meeting last week between Turkish diplomats and Nechirvan Barzani, prime minister of the autonomous Kurdish government in northern Iraq, "took place in an extremely positive atmosphere," Babacan said.

He added that it was the first direct contact between the two sides in recent years.

"There will be a closer dialogue in the coming period both with the central Iraqi government and the local administration in the north on issues concerning the struggle against terrorism, energy and trade," he told reporters.

"Naturally, the level and frequency of this dialogue will be closely linked to the concrete rhetoric and actions to be displayed particularly in the fight against terrorism," he added.

Ankara has accused Iraqi Kurds of harbouring and aiding the separatist Kurdistan Workers' Party (PKK), whose militants use bases in the northern Iraq mountains to launch attacks across the border.

Previously close bilateral ties deteriorated after the US-led invasion of Iraq in 2003, which gave Iraqi Kurds greater political clout and fanned Turkish suspicions that the PKK receives support in northern Iraq.

The United States, wary of even greater tensions in Iraq, has put pressure on the two sides, both close allies, to mend fences.

Since mid-December, Turkish warplanes have bombed PKK positions in northern Iraq and at least 150 militants were killed in the latest raid last week, according to the Turkish military.

In February, Turkish forces conducted a week-long ground offensive against PKK hideouts in the region, drawing protests from Iraqi Kurds and Baghdad.

Tensions eased a week after the cross-border operation when Iraqi President Jalal Talabani, a Kurd, visited Ankara and pledged cooperation against the PKK.

Washington, like Ankara, lists the PKK as a terrorist group and has backed its NATO ally's military actions by providing intelligence on the group's movements in Iraq.

Ankara estimates that about 2,000 PKK rebels take refuge in the mountains of northern Iraq and has charged that Iraqi Kurds supply them with weapons and explosives.

The PKK took up arms for self-rule in mainly Kurdish southeast Turkey in 1984, sparking a conflict that has claimed more than 37,000 lives.