Fighter jets bombed and destroyed several Kurdistan Workers' Party (PKK) mountain positions in provinces bordering Iraq and Iran, the semi-official Anatolia news agency reported.

Helicopter gunships also joined the raids that followed the killing of 12 soldiers in a PKK ambush near the Iraqi border on Sunday. The PKK said it captured eight soldiers in the clashes.

Another operation against the PKK was under way in the eastern province of Tunceli, Anatolia said.

The military said 34 PKK militants were killed in operations that followed Sunday's attack, which increased pressure on Ankara for a military incursion into northern Iraq, where the rebels take refuge.

A meeting of Turkey's National Security Council, comprising top officers and senior ministers, called late Wednesday on the government to apply economic sanctions against the Iraqi Kurds accused of supporting the PKK fighters.

"It has been decided to recommend to the government that they take economic measures against the Kurds who support, directly or indirectly, the separatist organisation," said a statement issued after the six-hour meeting.

Normally, the government follows the council's recommendations.

Politicians had previously raised the possibility of economic sanctions -- Foreign Trade Minister Kursat Tuzmen pointed out that Turkey was Iraq's largest trading partner, adding: "We are keeping all our options open."

Prime Minister Recep Tayyip Erdogan also hinted Tuesday at export restrictions on vital items such as power, water and food.

Meanwhile in Baghdad, Iraqi President Jalal Talabani denied a Turkish report that he had offered to extradite PKK leaders based inside Iraq.

"We have said several times that the leaders of the PKK are not staying in Kurdish cities of Iraq but they live with 1,000 of their fighters in the rugged Qandil mountains," said a statement from his office.

"It is impossible to arrest them and deliver them to Turkey."

The Qandil mountains are located along the Iraq-Turkey border, north of the city of Sulaimaniyah, a stronghold of Talabani's Patriotic Union of Kurdistan party.

Earlier, a Turkish government source said that Talabani told Turkish Foreign Minister Ali Babacan in Baghdad on Tuesday that he "did not exclude the possibility" of extraditing PKK militants.

Babacan had called on Iraq to hand over about 100 PKK members named on a list sent to Baghdad earlier this year, the source said. They were to discuss the matter with a visiting Iraqi delegation on Thursday, he added.

Ankara says it will not flinch from military action if Iraq and the United States fail to clamp down on PKK bases in northern Iraq.

Washington called for calm on both sides, and US Defence Secretary Robert Gates warned that any military action must be intelligence-based.

"Without good intelligence, sending large numbers of troops across the border or dropping bombs doesn't seem to make much sense to me," he told reporters after talks with NATO defence ministers in the Netherlands.

But NATO Secretary General Jaap de Hoop Scheffer said alliance member Turkey was "showing remarkable restraint under the present circumstances".

"The allies expressed full solidarity with Turkey in the face of these horrible terrorist attacks against Turkish soldiers and civilians," he said.

The European Union, which Turkey hopes to join, called on Ankara to refrain from unilateral military action and give diplomacy a chance.

"Turkey should think twice before launching a military intervention," Manuel Lobo Antunes, the European affairs minister of Portugal, told the European Parliament in Strasbourg. Lisbon currently holds the EU presidency.

Turkey has long demanded that Iraq stop the PKK from using its territory, cut off logistical support to the group and hand over rebel leaders to Turkey.

In Berlin, the United States' assistant secretary of state for European and Eurasian affairs Daniel Fried said the Kurdish administration in Iraq's autonomous north had to do more to weed out PKK rebels.

"It is in the interests of the Kurdish residents of Iraq that these terrorist attacks stop and that Turkey and Iraq become good neighbours," he said.

The United States also urged Iraq to follow through on a new promise to shut the offices of the Kurdish rebels, noting that Baghdad made the same vow 13 months ago.

"We can understand why the Turks would be skeptical, because that pledge was made, it does need to be fulfilled and we'll be talking to the Iraqis about that, as well," said White House spokeswoman Dana Perino.

Massud Barzani, the president of Iraqi Kurdistan, on Wednesday urged the PKK to end its armed struggle.