The freezing of the accounts of Zain Iraq, the country's biggest mobile phone company, comes amid negotiations between the Communications and Media Commission (CMC) and the firm over the size of the fine, originally set at $262 million when it was imposed in February 2011 over the selling of SIM cards.

"We have frozen the funds of Zain in Iraqi banks only," Ahmed al-Omari, a CMC commissioner, told AFP. "They have appealed the fine.

"We are in negotiations with them, and they have given very good responses. They said they are willing to pay the fine, but the difference is over the amount of the fine."

Omari said he expected the dispute to be resolved in the coming days.

In a statement to the Kuwait Stock Exchange, Zain Iraq's parent company said the decision was "not based on any court ruling", but added that it was in "contact and coordination with all regulators and supervisors."

"Talks are still going on in this regard," the statement said.

The CMC said in February 2011 it was fining Zain Iraq $262 million for placing five million SIM cards on the market without obtaining prior legal approval.

The company said at the time that the penalties were "unfair and unjust".

Kurdish authorities in Arbil suspended exports of oil via central government pipelines in April as a result of a payment dispute, restarting them last month as part of a goodwill gesture that is due to expire on September 15.

But on Tuesday, Iraqi ministers considered a cabinet report that said the suspension of exports, along with lower-than-expected levels of exports in months previous to April, equalled more than $3 billion is lost income.

"The cabinet decided to give the Kurdistan regional government one week to come and defend themselves," said Ali Mussawi, spokesman for Prime Minister Nuri al-Maliki.

"If they do not, these funds will be cut from their budget."

Kurdistan had originally halted exports on April 1 over $1.5 billion it said was owed to foreign oil companies working in the region that Baghdad had allegedly withheld.

Baghdad and Arbil are at odds over issues including Kurdistan's refusal to seek approval from Baghdad for oil contracts it has awarded to foreign firms, and over a swathe of disputed territory in northern Iraq.

The central government says all oil deals must go through the federal oil ministry, and it regards any that do not as illegal.