"Four policemen have been killed and eight wounded when two US helicopters and two planes carried out an air strike this morning against two police outposts north of Baquba," Jabbar Yawar, spokesman for the Kurdish peshmerga militia told AFP.

The incident comes less than three days after a US fighter jet dropped a bomb in southern Afghanistan that was intended for Taliban rebels but ended up killing three British soldiers and wounding two more.

Yawar said the incident on Sunday occurred near the town of Qara Tepe in an area largely inhabited by Kurdish Shiites.

He said Kurdish forces have been deployed in Diyala, particularly north of Baquba, at the request of the US-led coalition forces, to "fight terrorism and the firing at the outposts was a mistake."

The administration of Iraq's northern Kurdish region demanded an investigation into the incident.

"An accurate investigation should be launched to avoid such incidents in the future," the Kurdish interior ministry said in a statement.

US military confirmed the air strike but had no details of casualties or even the "identity of the target." It said it appeared two vehicles were destroyed.

"We are still trying to identify which unit was involved in the incident. We believe the US unit was a small unit, which makes it harder to identify who called for the helicopter strike," the military told AFP.

"We are still trying to determine the exact identity of the target. We have seen reports that they may have been Kurdish police but cannot verify that at this time."