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Iraq's government and the autonomous Kurdish region say they've resolved their longstanding disputes over the budget and oil exports, boosting prospects of closer co-operation against jihadists.

Despite months of bad blood, the deal shows that the federal and Kurdish regional government still need each other.

Plummeting oil prices are financially squeezing the Baghdad government and Arbil is in desperate need of cash to pay its civil servants and shore up its security forces.

Iraqi Prime Minister Haider al-Abadi's office said the deal was approved during a cabinet meeting attended by Kurdish Prime Minister Nechirvan Barzani.

Under the deal, due to take effect at the start of 2015, 250,000 barrels per day of oil will be exported from the autonomous region and another 300,000 bpd from the disputed province of Kirkuk.

"We have reached an agreement with the Iraqi government which will benefit both parties and whereby we will export 250,000 bpd of regional oil and help the federal government export the Kirkuk oil," Barzani told reporters.

Oil from the Kurdish region or claimed by its leadership will be shipped out via Kurdish pipelines but through the federal oil company.

In return, Baghdad will release the regional government's share of national revenue, which had been frozen for more than a year in retaliation for Arbil's efforts to export oil unilaterally.

The federal government also will give a share of its military budget to the Kurdish peshmerga fighters.

"The federal prime minister has expressed his readiness to guarantee one billion dollars from the Iraqi budget for the peshmerga forces," Barzani said.

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Iraq govt, Kurds agree budget, oil deal