BAGHDAD (AFP) - Iraqi government forces regained full control on Thursday of the country's biggest oil refinery after heavy fighting with Sunni militants attempting to seize it, officials said.

Sunni Arab insurgents had stormed the complex in Baiji, south of Iraq's militant-held second city Mosul, on Wednesday, setting fire to several storage tanks for refined products in a move that sent jitters through world oil markets.

"The security forces are in full control of the Baiji refinery," Lieutenant General Qassem Atta, Prime Minister Nuri al-Maliki's security spokesman, said in televised remarks.

A refinery employee told AFP that the militants had withdrawn, as did other witnesses, who said the assailants quit the sprawling complex in the face of a heavy fightback by security forces.

Clashes erupted at the refinery early on Wednesday, setting storage tanks for petroleum products alight. The fighting went on until roughly midnight (4am on Thursday, Singapore time) and continued sporadically into Thursday.

The refinery is the biggest in Iraq, accounting for some 50 per cent of the country's supplies of refined products.

But its catchment area has been sharply curtailed by the militants' seizure of a swathe of northern Iraq, including second city Mosul, which has a population of some two million people.