Mumbai: China has signed a $3 billion deal with Iraq for revising a prewar agreement that would allow China National Petroleum Corporation (CNPC), the country's largest oil company, to develop Iraq's Al-Ahdab oil field, sources at the Iraqi oil ministry and the Iarqi embassy in Beijing said.

The agreement essentially revives a 1997 contract that granted the Chinese company exploration rights to the Al-Ahdab oil field in the province of Wassit, south of Baghdad.

Iraq, however, has changed the terms of the contract to a fee-based service deal from the oil production sharing agreement signed under Saddam. The agreement was reached during Iraqi oil minister Hussain al-Shahristani's visit to China, an embassy statement said.

Exploration activities under the deal, originally valued at $700 million, with planned production of 90,000 barrels per day for 23 years, had to be suspended following UN sanctions and postwar security problems.

Iraq now wants to ramp up production at the field by 500,000 barrels per day (bpd)  to the prewar levels, from the current average of 2.5 million bpd.

The agreement, originally signed under the government of former Iraqi president Saddam Hussein in 1997, is yet to be approved by the Iraqi cabinet as the new government has not so far enacted laws governing the oil industry.

The original contract, worth $1.2 billion at the time, gave a subsidiary of the CNPC concessions to develop the field on a production-sharing basis for 23 years.

If approved, the agreement would be the first Saddam-era oil deal to be honored by the new Iraqi government.

A number of companies say they signed deals with Saddam's regime and demand that those be honored, or the countries involved be given priority on new agreements.

The Iraqi oil ministry has thrown open six oilfields and two gas fields for international bidding. Forty-one companies are in the bidding and contracts are expected to be signed in June next year.

Shahristani, meanwhile, warned western oil companies that time was running out for them to seal even the short-term deals.