The Kurdistan Regional Government's (KRG) opposition poses a challenge to the prime minister of Iraq's federal government, Mohammed al-Sudani, in adopting a three-year budget, a flagship policy of his government that came to power late last year backed by a coalition of Shi'ite, Sunni and Kurdish parties.

KRG said it would not abide by any other decision outside the agreement signed with Sudani's government, which appeared to be a reference to a deal between the two governments setting a framework for the resumption of oil flows from the northern Iraqi region via Turkey, Reuters reported.

Before Sudani formed his government, he struck a deal with the powerful Kurdish Democratic Party (KDP), which dominates the administration in Erbil, capital of the semi-autonomous region in northern Iraq.

The agreement included ending a long-running dispute over budget transfers to Erbil and oil revenue sharing between the national government and Kurdistan, according to three Kurdish officials.

Under the Iraqi constitution, the Kurdish region is entitled to a portion of the national budget. But the arrangement collapsed in 2014 when the Kurds began selling crude independently from Kurdistan.

In 2017, Iraqi forces retook disputed territories including the oil city of Kirkuk. Baghdad resumed some budget payments, but they have been sporadic.

KRG called the changes in the draft budget, introduced by members of the parliament's finance committee, unconstitutional and "inconsistent with the agreement signed between the regional government and the federal government".

In March, Sudani's cabinet approved the 2023 draft budget of 197.828 trillion Iraqi dinars ($135.6 billion) that would be referred to parliament for approval.