Baghdad relies heavily on Tehran to provide it natural gas and Iranian-generated electricity, and feared that supply would be endangered by Washington's measures against Iran's energy sector.

The US State Department's representative on Iran said Wednesday that Iraq had been granted a special permission.

"We granted Iraq a waiver to allow it to continue to pay for its electricity imports from Iran. We are confident that this will help Iraq limit electricity shortages in the south," Brian Hook told reporters in Washington.

"Iraq is a friend and a partner, and we are committed to its stability and prosperity."

Iraq is now expected to demonstrate to the US how it would wean itself off Iranian gas, a well-informed Iraqi source told AFP.

"The US gave us 45 days to give them a plan on how we will gradually stop using Iranian gas and oil," the source said.

On Monday, the United States re-imposed tough sanctions on Iraq's financial institutions, shipping lines, energy sector, and petroleum products.

Iraq has a strong relationship with the United States, coordinating on security, politics, and governance.

But its economy is profoundly intertwined with that of Iran, from which it imports consumer goods amounting to around $6 billion (five billion euros) in 2017.

It also pipes in natural gas and 1,300 MW of Iranian-generated electricity to cope with power shortages.

Most of Iraq's 39 million people only get a few hours of state-provided electricity per day and rely on power generators.

Chronic power outages were a key driving factor behind weeks of massive protests in southern Iraq during the summer.