Heavy clashes broke out between Iraqi and Kurdish troops on Friday as government forces advanced into the last remaining-Kurd-held area of Kirkuk province.
The fighting in Altun Kupri, near the border with Iraq's semi-autonomous Kurdish region, came days after central government forces ousted Kurdish forces from other disputed territories.
Altun Kupri is 35 kilometres north-west of Kirkuk city, on the road between the city and the Kurdish capital of Erbil, which lies 50 kilometres to the north.
"The army, police and counter-terrorism forces entered the centre of the Altun Kupri region", a security source said.
"There were clashes but they managed to launch the assault … and hoist the flag on the municipality building," the source said.
An Iraqi military spokesman said the government forces included militias from the Iran-backed Popular Mobilisation Units.
Like Kirkuk city, Altun Kupri is multi-ethnic with Arab, Turkmen and Kurdish residents.
Iraqi troops and Shiite paramilitary forces pushed into Kirkuk city on Monday as Kurdish fighters gave up their positions.
On Wednesday, the Iraqi military announced its troops had completed the operation to retake not just Kirkuk city and its lucrative oilfields, but also Kurdish-held areas in Nineveh and Diyala provinces.
The Kurds took control of Kirkuk city in 2014 after the Iraqi army fled a lightning advance by ISIL across northern and western Iraq.
The current confrontation was precipitated by a Kurdish independence referendum held last month despite objections from most of the international community and Baghdad, which said the poll was against the constitution. The US-led coalition against ISIL said it would jeopardise the fight against the extremist group, in which Kurdish forces have played a key role.
Iraq's top Shiite cleric, Ayatollah Ali Al Sistani, called on Friday for the government to protect Kurdish civilians in northern Iraq following reports of abuses against them in the areas retaken by government forces.
The call was issued by a representative of the cleric during Friday prayers in the holy Shiite city of Karbala.
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