Iraqi forces led an offensive Monday near Kirkuk, seizing a key military base and other territory. The offensive, which follows weeks of soaring tensions between two US allies in the battle against the ISIS, aims to retake oil fields and military bases that Kurdish forces seized during the fightback against the jihadists.

Iraqi and Kurdish peshmerga forces exchanged artillery fire early Monday south of Kirkuk, the capital of the oil-rich province, after the launch of the operation overnight.

In a major advance, Iraq's Joint Operations Command said central government forces took control of the K1 military base northwest of the city — the first objective of the offensive — following the withdrawal of peshmerga fighters.

They also seized the Baba Gargar oil field, one of six in the disputed region along with bridges, roads and an industrial zone to the southwest of Kirkuk, as well as gas facilities, a power station, a refinery and a police station, it said.

Members of Iraqi federal forces gather near oil fields in Kirkuk, Iraq October 16, 2017. Credit: Stringer/Reuters

The clashes follow an armed standoff between Kurdish forces and the Iraqi army prompted by the September 25 non-binding referendum that produced a resounding "yes" for independence for the autonomous Kurdish region of northern Iraq.

Baghdad has declared the referendum — held despite international opposition — illegal.

Crisis talks on Sunday had made little headway in resolving the standoff, which has raised fears of fresh chaos just as ISIS jihadists are on the verge of losing their last strongholds in the country.

State television announced that government troops had taken "large areas" of the province from Kurdish forces "without fighting."

Military sources on both sides however reported exchange of Katyusha rocket fire to the south of the provincial capital.

Iraqi Prime Minister Haider al-Abadi, who said this week that he was "not going ... to make war on our Kurdish citizens," has "given orders to armed forces to take over security in Kirkuk," state television said.

Iraqi troops will "secure bases and government facilities in Kirkuk province" the government said.

Multiple peshmerga fighters were injured in the clashes and hospitalised in Kirkuk, a local security source said.

Abadi said that members of the Hashed al-Shaabi, the paramilitary Popular Mobilization forces, which are dominated by Iran-backed Shiite militias, would stay away from Kirkuk, where there have been multiple demonstrations against their involvement in the dispute.

An AFP photographer saw columns of Iraqi troops heading towards Kirkuk from the south.

Two people were killed in artillery exchanges at Tuz Khurmatu, about 46 miles south of Kirkuk, a doctor at a city hospital said.

'Declaration of war'

On Sunday, Iraq's National Security Council said it viewed as a "declaration of war" the presence of "fighters not belonging to the regular security forces in Kirkuk," including fighters from Turkey's outlawed Kurdistan Workers' Party.

For their part the Iraqi forces have said that they have no wish to enter Kirkuk but that they wish to retake military positions and infrastructure which were under their control before their troops withdrew in the face of hostility from the jihadists.

On the fringes of the town, they used loudspeakers to call on the peshmerga to give up their positions, local sources said.

Long claimed by the Kurds as part of their historic territory, the province has emerged as the main flashpoint in the dispute.

Polling during the referendum was held not only in the three provinces of the autonomous Kurdish region but also in adjacent Kurdish-held areas, including Kirkuk, that are claimed by both Baghdad and Iraqi Kurdistan.

The Kurds control the city of Kirkuk and three major oil fields in the province that produce some 250,000 barrels per day, accounting for 40 percent of Iraqi Kurdistan's oil exports.

The fields would provide crucial revenue to Baghdad, which has been left cash-strapped from the global fall in oil prices and three years of battle against ISIS. Iraq is also demanding the return of a military base and a nearby airport, according to the Kurds.

by Abdallah Ibrahim with Ammar Karim/AFP