US backed and trained forces of the Iraqi army launched an operation against the US backed and trained Kurdish soldiers in the disputed Kirkuk region.
Iraqi forces launched a major operation south of Kirkuk late Sunday with the aim of ousting the Kurds, who occupied the city three years ago to protect it from Islamic State.
Iraqi government forces have captured key installations outside the disputed city of Kirkuk from Kurdish fighters.
A military statement said units had taken control of the K1 military base, the Baba Gurgur oil and gas field, and a state-owned oil company's offices, and many reports state that Iraqi forces have also entered the city of Kirkuk.
Baghdad said the Peshmerga had withdrawn "without fighting", however many clashes were reported south of Kirkuk, and Kurdish officials claim that they sustained "many casualties".
The operation was launched as a response to the Kurdistan Region held independence referendum which saw Kurds vote overwhelmingly for independence.
Iraq's prime minister has said the vote - in which residents of Kurdish-controlled areas, including Kirkuk, overwhelmingly backed secession - was unconstitutional and vowed to take action against it.
The Kurdistan Region Security Council accused Baghdad of launching an "unprovoked attack" and said the Peshmerga would "continue to defend Kurdistan, its peoples and interests".
Peshmerga had destroyed five US-made Humvees used by the Popular Mobilisation, a paramilitary force dominated by Iran-backed Shia militias, it added.
Kirkuk is an oil-rich province claimed by both the Kurds and the central government. It is thought to have a Kurdish majority, but its provincial capital has large Arab and Turkmen populations.
This Iraqi operation could be the opening moves in what threatens to be a new civil war in Iraq; a battle for the control of territory captured from IS, most of it is under Kurdish forces control, a fact that the Iraqi government wishes to challenge and change through the use of its military.
If the Iraqi government will decide to expand this operation into all the disputed regions which are held by the Kurds, and which voted overwhelmingly for Kurdish independence, that that would mean a full scale civil war, as the Kurds will not give away all the territory they acquired at such a high cost while fighting ISIS.