Iraq's media and telecoms regulator has frozen all of Kuwaiti mobile phone operator Zain's funds held in local banks over an unpaid fine, an official said on Tuesday.

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".