Turkey has welcomed Iranian proposals for a delay of the Kirkuk referendum for two years while the Iraqi Kurds have said this is unacceptable and would lead to serious tensions in the region.

Iran has urged Iraq to postpone a divisive referendum to decide the fate of Kirkuk, an ethnically mixed city that sits on huge oil fields, as part of a series of measures Tehran says will stabilise the country.

The plan was presented by Foreign Minister Manouchehr Mottaki at a meeting of Iraq's neighbors in Istanbul but was little noticed amid the intensive diplomacy efforts to prevent a Turkish incursion into Iraq to hunt down PKK terrorists.

Iran's official IRNA news agency said Mottaki proposed a two-year delay for the referendum, due by Dec 31, which will decide whether the city is incorporated into Iraq's semi-autonomous Kurdistan region.

The referendum is already delayed as the authorities have failed to complete the "normalization" process in the province and hold a population census.

According to the Iraqi constitution first the displaced Kurds and Turkmens would return to Kirkuk while the Arabs brought into the city by the Saddam regime as part of the Arabization campaign would be sent back to their original hometowns. Even this priocess has not be completed.

After this a census should have been held in July but that too did not happen. So a delay has becomke inevitable on technical grounds.

Turkey has also asked for a delay of the referendum. Some Arabs in Iraq as well as neighboring Arab states like Saudi Arabia also want such a delay.

Iraqi Kurdish region president Massaoud Barzani has warned a delay would spark civil war in Kirkuk. Iraqi Kurds fear such delays will eventually cancel the referendum forever.

An Iranian official familiar with the plan said Tehran believed Baghdad was already working on too many divisive political issues, including how to share oil revenues equitably. Kirkuk was seen as a major challenge that could turn into mission impossible.

Iraqi officials said their delegation listened politely to the Iranian suggestion, part of a package of proposals that also urged Baghdad to begin a withdrawal of foreign troops.

'We accept the advice, but we refuse to let anyone interfere with Iraq's internal affairs,' Iraqi government spokesman Ali Al Dabbagh said from Istanbul.

Iran says the plan was put forward to help bring stability to Iraq -- although Washington accuses Tehran of promoting violence and backing Shi'ite militias.

Iran has a Kurdish minority and, like Turkey, fears that if Iraqi Kurds control Kirkuk and its oil wealth, this could fuel Kurdish separatism.

Kirkuk, an ancient city 250 km north of Baghdad, is claimed by ethnic Kurds, Arabs and Turkish-speaking Turkmen. Kurds see it as their historical capital, but Arabs who moved there as part of Saddam Hussein's Arabisation plan in the 1970s want to stay under the control of the Baghdad government.