BAGHDAD: Iraq's fractious MPs have finally approved a law to govern the country's general election in early 2010, a move hailed by US President Barack Obama as an important step towards a lasting peace.

The decision on Sunday paves the way towards finalising a date for the second national vote since the American-led invasion that ousted Saddam Hussein from power in 2003, a poll seen as crucial to ensuring a complete US military exit in 2011.

The law was passed after weeks of delays and following huge pressure from the United Nations, religious leaders and Washington.

"This is an important milestone as the Iraqi people continue to take responsibility for their future," Obama said, stressing the US will continue to stand by the country invaded by his predecessor George W. Bush.

"Iraq has known many challenges, and in the past several weeks we've seen that there are still those who would kill innocent men, women and children to deny the Iraqi people the future they deserve," he added.

"Today's step forward is another reminder that these enemies of the Iraqi people will fail. The United States will continue to stand with Iraq as a strong partner and as a friend."

US ambassador Christopher Hill said an election date of January 23 is now probable. He spent all Sunday engaged in intense lobbying at parliament encouraging rival camps to set aside their disputes over the law.

Key to approval were provisions governing the conduct of the vote -- originally slated for January 16 -- in Kirkuk, a disputed and ethnically-mixed province of Kurds, Sunnis and Turkmen.

An open voting system will be used in which electors can choose an individual named candidate, which favours high-profile politicians, or a political party of their choice.

The law also guarantees that at least 25 percent of MPs will be women and allocates at least eight parliamentary seats for Iraqi minorities, including five for Christians.

Prime Minister Nuri al-Maliki said the electoral law is "a strong response to the terrorists and thugs of the former regime" of Saddam and "those who are trying to undermine Iraq's security and political process."

MPs decided the election result will be provisional in Kirkuk and other provinces where there is disagreement over electoral rolls because of a high recent increase in respective Kurd and Arab populations.

Kirkuk's majority Kurds have long demanded incorporation into the region, arousing fierce opposition from the province's Arabs and Turkmen, who say the overthrow of Saddam prompted massive demographic change.

Arabs and Turkmen say a huge number of Kurds have settled in Kirkuk in the subsequent six years but they contend they were only returning to an area from which they had been forced out of during the now executed dictator's reign.

A committee of parliamentarians, officials from government ministries and Iraq's Independent High Electoral Commission (IHEC) with the help of the UN, will have one year to review the vote in Kirkuk and cancel fraudulent ballots.

Amid frenzied scenes the parliament's vice president Khaled al-Attiya said on state television that 141 of the 195 members present voted for the document.

The election is viewed as critical to consolidating the war-torn nation's fledgling democracy ahead of a withdrawal of US combat troops by August next year and a complete pullout by the end of 2011.

"The view of the UNAMI (United Nations Assistance Mission for Iraq) is that (the election) can take place in January," US ambassador Hill told reporters in a conference call from Baghdad, mentioning January 23 as the likely date.

"We're good to go on a January date," he said.

Hill underlined the seriousness of passing the electoral law by admitting that further hold ups could have disrupted the timeline for the US troop withdrawal.

"The drawdown can (now) be done according to schedule," he said.

"What was the concern of course was had these deliberations gone on, then new decisions would have had to be made about the drawdown."

Hamdiyah al-Husseini, a high ranking IHEC official, said the scheduled January 16 date is too soon for the vote.

"The election cannot take place on time and a new date will be chosen," she said.

Constitutionally, the election must be held by January 31.