The United States has sternly urged the semi-autonomous region of Iraqi Kurdistan to call off its independence referendum, saying the timing for the vote is not right.

Iraqi Kurdish legislators on Friday approved the September 25 vote that was set in motion by regional president Massud Barzani, a Washington ally who has publicly kept open the option of postponing it.

Washington has long supported Kurdish autonomy and has relied on the region's forces in the war against the Islamic State of Iraq and the Levant (ISIL) group, but it fears that now is not the time for the people to seize their freedom.

US officials fear the vote, while not legally binding, will hurt Iraqi Prime Minister Haider al-Abadi's re-election chances; complicate ties with Turkey; and disrupt the war against ISIL (also known as ISIS).

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"The United States has repeatedly emphasised to the leaders of the Kurdistan Regional Government that the referendum is distracting from efforts to defeat ISIS and stabilise the liberated areas," President Donald Trump's White House said in a statement.

"Holding the referendum in disputed areas is particularly provocative and destabilising," it warned.

While Baghdad recognises Kurdistan's autonomy, the precise boundary between the region and the rest of Iraq is unclear.

The US also wants the Kurds to enter into a "serious and sustained dialogue with Baghdad" which Washington "has repeatedly indicated it is prepared to facilitate", the statement said.

This week, top US envoy Brett McGurk was again in Erbil and attempted to persuade the Kurdish leader to call off the highly-charged popular vote in exchange for a new diplomatic initiative.

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Under this plan, a well-placed source told AFP news agency, the international community will oversee negotiations on revenue sharing in Iraq's oil budget and payment for Kurdish militia fighters.

Borders and military forces would remain in their current positions, and Baghdad would authorise Kurdistan to continue exporting the oil that it currently ships through Turkey in breach of the federal constitution.

Finally, Kurdish parties would take part in the Iraqi government and the 2018 elections.

Divided city

The vote, which was backed by 65 legislators out of 68 present, was to give a legal framework to the referendum that has also stirred protests from neighbouring states, especially Turkey.

Turkish President Recep Tayyip Erdogan has warned the vote could prove "a very, very bad thing" for the Iraqi Kurds, whose economy is heavily dependent on oil exports via a pipeline running through Turkey.

Turkey's National Security Council will meet on September 22 to decide its official position.

The oil-rich province is disputed by Baghdad and Erbil and home to diverse communities including Arabs and Turkmens who oppose the vote.

Iraqi Kurdistan, whose people were brutally repressed under Saddam Hussein, won autonomy following his removal in a US-led invasion, under a 2005 constitution which set up a federal republic in Iraq.