Iraq's Joint Operations Command said police, counter-terrorism units and allied militias seized the Altun Kupri region, expanding the central government's territory to within 50 kilometres (30 miles) of Arbil, the capital of the autonomous Kurdish region.
The two sides exchanged mortar and automatic gun fire but Iraqi forces managed to "hoist the flag on the municipality building" after carrying out an assault, a security source in the city of Kirkuk said.
A Kurdish general, Ghazi Dolemri, was killed in the fighting, sources said, while an AFP journalist reported further shelling as Iraqi government forces and the Hashed-Shaabi militia advanced on Sirawa, five kilometres north of Altun Kupri.
Days of gains
The fresh gains come after Iraq's central authorities snatched back control of a swathe of disputed territory from Kurdistan in a largely bloodless operation since the weekend.
The government advances -- and Kurdish retreat -- have rewritten the volatile boundaries between the two sides and trashed Arbil's dreams of independence that soared after a September 25 referendum opposed by Baghdad.
Iraq's forces have snatched back the oil riches of the Kirkuk region, along with areas of Nineveh and Diyala provinces, driving Kurdish forces from positions they claimed in the chaos of the Islamic State group's 2014 rampage across the country.
The lightning speed of the operation has been helped by rifts between rival Kurdish factions that saw those opposed to regional president Massud Barzani -- the architect of the independence vote -- strike a deal with Baghdad to withdraw.
The agricultural region of Altun Kupri, which means "golden bridge" in Turkish, covers an area of 520 square kilometres (200 square miles) inhabited by Kurds and a Turkmen community.
Security in the Altun Kupri area had been ensured by Kurdish police forces loyal to Barzani ever since the US-led invasion of 2003.
In their bid to stop the Iraqi forces, the peshmerga planted explosives that damaged one of the main bridges linking Kirkuk to their regional capital Arbil over the Little Zab river, according to a local security source.
'Restoring' authority
In Baghdad, Haydar Hamada, a spokesman for Prime Minister Haider al-Abadi, said Iraqi forces were pressing on with the operation to impose government control over the disputed areas after the independence vote.
"We will continue restoring the authority of the federal authorities," he told AFP.
But a peshmerga commander in Arbil accused the Iranian-backed Hashed militia of trying to extend the boundaries of the Kirkuk province into Kurdish territory.
While the Iraqi advance has been met with little resistance as it pens the Kurds back into the three provinces that make up their autonomous region, sporadic clashes have led to some bloodshed.
Peshmerga commander Wasta Rassoul, a member of the PUK faction that opposes Barzani, said 26 Kurdish figthers had been killed and 67 wounded since Sunday.
The tensions between the Kurds and the Iraqi forces have pitted two vital US allies in the fight to destroy the Islamic State group against each other.
The two sides have cooperated in the Washington-backed offensive that has seen the jihadists driven from their major urban strongholds into a rump territory along the border with Syria.
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