IRAN has brokered a critical deal with its regional neighbours that could lead to the installation of a pro-Tehran government in Iraq.

The Islamic republic was instrumental in forming an alliance between Nuri al-Maliki, who is vying for a second term as Iraq's Prime Minister, and radical Shiite leader Muqtada al-Sadr.

The deal, which involved Syria and Lebanon's Hezbollah, positions Mr Maliki as a frontrunner to return as leader despite a seven-month stalemate between Iraq's feuding political blocs.

In early September, the US had only just withdrawn its last dedicated combat units from Iraq but left behind a political vacuum after March elections delivered a hung parliament.

''The Iranians were holding out until then,'' said a key source about the timing of the Iranian move. ''They were not going to give the Americans the satisfaction of leaving on a good note.''