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Iraqi Kurds have begun pumping oil from the Kirkuk oilfields that were abandoned by central government security forces in June, rerouting it to the pipeline system that runs through its own territory.
Kurdish peshmerga forces took control of Kirkuk city after a coalition of Sunni militants, spearheaded by the ultra-violent Islamic State group, overran Iraq's northern capital of Mosul and surrounding areas.
The Kurds went on to seize oil production facilities at Kirkuk and Bai Hassan on July 11, in a move denounced by Baghdad.
"They are using a pipeline which was originally used to send crude from (Kurdistan), but they have now reversed it (to use it by the Kurdish region)," a senior oil official said, as quoted by Reuters news agency.
Around 20,000 to 25,000 barrels were being pumped daily, the official estimated.
Relations between Erbil and Baghdad have deteriorated in recent weeks as Iraq's caretaker Prime Minister Nouri al-Maliki struggles to contain a growing insurgency.
Kurdish lawmakers have withdrawn from central government meetings after Maliki accused the Kurds of providing a haven to terrorists. The Kurdish Regional Government (KRG) then called on its members to prepare for a vote on independence.
The two sides remain locked in a long-running dispute over the allocation of state money and the KRG's right to sell oil independently of Baghdad.
Iraq's oil ministry reacted furiously, saying the Kurds should "support security forces in confronting terrorist groups rather than using the conditions to raid and occupy oilfields."
The ministry estimates that the two oilfields at Kirkuk and Bai Hassan have a joint production capability of 400,000 barrels a day.
Maliki has struggled to form a government since elections were held in April. The situation has become significantly more complicated, with Isis advancing and Iraqi Kurdistan threatening to break away. Kirkuk has long been sought by Iraq's Kurds as a capital city for a future state.