The award to Iran for the construction of a 160-megawatt power plant in Baghdad's Sadr City has alarmed the U.S. military in Iraq, Middle East Newsline reported. Military sources said the U.S.-led coalition was concerned that Iran could use the $150 million project to significantly expand its intelligence and military presence in Iraq.

Iran has sought to dominate Iraq's Shi'ite sector. Teheran has agreed to provide cheap electricity from its own grid to Shi'ite areas of southern Iraq. Iran has also offered to build a large power plant without cost to the Baghdad government between the Shi'ite cities of Karbala and Najaf.

The Chinese power plant would be located in the Iraqi province of Wasit. Officials said the 1,300 megawatt facility, awarded to China's Shanghai Heavy Industry, would cost $940 million.