Turkey said Friday it has proposed to mediate a long-running dispute between Baghdad and its autonomous Kurdistan region over dividing oil revenue.

"The system we will establish will certainly help resolve the dispute between the Kurdish regional government and the central government," Energy Minister Taner Yildiz told reporters in Ankara.

Iraq's federal government in Baghdad and autonomous Kurdistan have long been divided over how to split energy revenue, which has paralysed development of new oil and gas projects in the region.

Energy-hungry Turkey is keen on seeing progress on the issue to satisfy its growing energy needs.

Yildiz said Ankara has suggested it can serve as an independent intermediary by having oil revenues deposited into an escrow account at a Turkish state bank.

Both Baghdad and Kurdistan would have full information on funds in the account and would decide between themselves on the percentage of revenue to be paid to each.

Yildiz said he discussed the proposal with Hussein al-Shahristani, Iraq's deputy prime minister responsible for energy affairs, during a visit to South Korea last month.

The minister said so far Baghdad wasn't sure what type of system it wanted, adding that "energy should be used as an instrument for peace, not tension."

Moves by Turkey and international oil companies to expand cooperation with Kurdistan and develop projects without the agreement of Baghdad has ratcheted up tensions, however.

Turkey's moves in Iraq have also raised eyebrows in Washington, where there are concerns that it could tip the volatile country towards disintegration and push an increasingly isolated Baghdad into Iran's embrace.

After a few of years of tension, including tit-for-tat accusations of stirring up sectarian violence, Ankara and Baghdad have tried to appease ties in recent months, however.

Asked about US response to the Turkish proposal for mediation, Yildiz said: "I am of the opinion that the formula we have developed will be approved."

Analysts say energy-hungry Turkey's dependence on expensive imports from Iran and Russia are pushing it to find cheaper sources, with Kurdistan an attractive option.

Turkey has brushed aside concerns about its expanding cooperation with Kurdistan, saying the Kurdish regional government has a right under the Iraqi constitution to use part of its energy resources with whichever country it chooses.

A Baghdad-controlled oil pipeline that goes to Turkey operates well below its capacity to transport 70.9 million tonnes per year, with the minister saying it has the capacity to carry 1.5 million barrels of oil per day.

"The more this pipeline operates at full capacity, the more revenues Iraq will receive," Yildiz said.

Turkey is planning to increase use of the existing pipeline more active and wants to add additional oil and gas pipelines along the route.

In another sign of burgeoning ties, the minister said his country was discussing a project for joint exploration on 13 oil and gas blocks in northern Iraq.

Yildiz said the Turkish Energy Company established by the government to operate in Iraqi Kurdistan was seeking to partner with a third company in six of the blocks as part of Ankara's efforts to step up its presence in the north.

"This will be an agreement that will be interest of both Turkey and Iraq," he added.

The minister's comments come a day before Iraqi Kurdish leader Massud Barzani meets with Turkish Prime Minister Recep Tayyip Erdogan in the Kurdish-majority Turkish city of Diyarbakir, in a landmark trip branded as "historic" by Ankara.

Yildiz said he would not travel to Diyarbakir for talks with Barzani and not the finalisation of energy deals during the visit.