The Turkish foreign minister said on Wednesday that Ankara will mediate talks later this month in Baghdad between the Iraqi government and the Erbil-based Kurdish administration.

“We've had mediation requests and are expected to visit Baghdad on January 21 to discuss bilateral relations and the issue of mediation," said Mevlut Cavusoglu, who will lead a Turkish delegation to the Iraqi capital.

Baghdad and Erbil’s relationship deteriorated after the Kurdistan Regional Government (KRG) held a non-binding independence referendum in September last year. Baghdad said the vote, which saw an overwhelming response in favour of secession, was against the Iraqi constitution.

Mr Cavusoglu said Ankara would play an “effective role” in resolving the dispute between the two sides.

Erbil is seeking to repair ties with Turkey, which threatened to close its borders to oil exports from the autonomous Kurdish region over the independence vote.Iraq’s prime minister, Haider Al Abadi, said on Tuesday that he had “ordered” the resumption of military talks between Baghdad and Erbil.

Baghdad responded to the Kurdish independence referendum by halting all international flights to and from Iraqi Kurdistan and sending troops to retake disputed areas outside the autonomous Kurdish region that were held by Kurdish forces. These measures have left the KRG grappling with an economic and political crisis.

“I have instructed the military committee to engage in regular talks” with the Kurdish Peshmerga forces, Mr Al Abadi said during his weekly press conference in Baghdad.

The prime minister also confirmed that a delegation has been formed to resolve the issue of Iraqi Kurdistan’s borders and to follow up on Baghdad’s demand for the Peshmerga to withdraw to the pre-2003 borders that separated KRG-administered areas from the rest of Iraq.

Meanwhile, Mr Al Abadi confirmed that the share of the Iraqi budget allocated to the KRG in the 2018 draft budget bill would not be amended.

"The share … is settled. It is not subject to change," he said, adding that the "parliament needs to approve the draft 2018 federal budget as soon as possible; any delay will impacts our citizens and affects the delivery of public services".

PM @HaiderAlAbadi: The share allocated to Kurdistan region in the draft federal budget is settled. It is not subject to change

— Government of Iraq  January 9, 2018
The central Iraqi government has halted all federal funds to the KRG for the past three years. But until Baghdad's recapture of disputed areas in October, the KRG held nearly all of northern Iraq's oil infrastructure and so had been able to sell enough crude to fund itself. Now, however, the autonomous Kudish region is once again financially dependent on Baghdad.

The United States on Wednesday voiced its concerns about Baghdad and Erbil's dispute.

"The United States is anxious for Kurdistan's existence within a unified Iraq," the US ambassador to Iraq, Douglas Silliman, said during a press conference in the embassy.

"The US has encouraged Baghdad to pay the salaries of Kurdish public servants and to co-ordinate security and border issues with Erbil."