BAGHDAD (REUTERS, AFP) - Iraqi forces and Kurdish Peshmerga fighters reached an agreement on Friday (Oct 27) to stop fighting in northern Iraq, the media office of the US-led anti-Islamic State in Iraq and Syria (ISIS) coalition said.

A spokesman for the coalition in Baghdad told Reuters the ceasefire agreement covered all fronts.

Iraqi government forces and the Iranian-backed Popular Mobilisation launched a surprise offensive on Oct 16 in retaliation to a Sept 25 referendum on independence organised by the Kurdistan Regional Government (KRG) in northern Iraq.

The offensive aimed to capture so-called disputed territories, claimed by both the KRG and the Iraqi central government, as well as border crossings and key oil facilities.

The oil-rich city of Kirkuk fell to Iraqi forces without much resistance on Oct 16 but the Peshmerga began to fight back forcefully as they withdrew closer to the core KRG territory. The most violent clashes happened in the northwestern corner, where Peshmerga are defending land crossings to Turkey and Syria and an oil hub that controls KRG crude exports.

Iraqi forces set a tight deadline earlier on Friday for Kurdish fighters to withdraw from the area on the Turkish border, a government source said.

The senior security source, asking not to be named, said Kurdish peshmerga fighters were being given "a few hours" to pull out of the area around the Fishkhabur border post.

Clashes between the two sides had ceased "with only occasional exchanges of fire", said the source.

Iraqi forces on Thursday mounted a new assault on Kurdish fighters in the disputed oil-rich Zummar area of Nineveh province, triggering heavy artillery exchanges.

In an advance over dusty terrain with armoured vehicles, government forces recaptured villages close to the route of a strategic oil export pipeline linking the Kirkuk fields retaken from the Kurds earlier this month with the Turkish port of Ceyhan.

The Kurds shut down the pipeline during the 2014 sweep through northern and western Iraq by the Islamic State in Iraq and Syria (ISIS) terror group and built their own pipeline further north.

The Fishkhabur region, at the extreme edge of autonomous Iraqi Kurdistan and where the Turkish, Iraqi and Syrian borders converge, is of strategic importance to both Baghdad and the Kurds of northern Iraq.

The Kurds have been defending the Zummar and Rabiya areas of Fishkhabur because they are used by Kurdish forces battling ISIS in Syria to smuggle out fuel products by tanker trucks to Turkey, according to the Iraqi source.

The UN Security Council on Thursday urged Iraq's government and Kurdish leaders to set a timetable for talks on ending their conflict triggered by a Sept 25 independence referendum held by the Kurds in defiance of Baghdad.