Iran has signed a deal to sell Iraq arms and ammunition worth US$195 million - a move that would break a UN embargo on weapons sales by Tehran.
Documents seen by Reuters showed the agreement was reached at the end of November, just weeks after Iraq's Prime Minister Nouri al-Maliki returned from lobbying the Obama administration in Washington for extra weapons to fight al-Qaeda-linked militants.
Some in Washington are nervous about providing sensitive US military equipment to a country they worry is becoming too close to Iran.
Several Iraqi lawmakers said Maliki agreed to the deal because he was fed up with delays in US arms deliveries.
A spokesman for the Iraqi prime minister would not confirm or deny the sale, but said such a deal would be understandable given Iraq's current security troubles.
"We are launching a war against terrorism and we want to win this war. Nothing prevents us from buying arms and ammunition from any party and it's only ammunition helping us to fight terrorists," said the spokesman, Ali Mussawi.
The Iranian government denied any knowledge of an agreement to sell arms to Iraq, which would be the first between Shiite Iran and Iraq's Shiite-led government. It would also highlight the growing bond between the countries in the two years since US troops departed Iraq.
The US State Department said it was looking into the reports.
"If true, this would raise serious concerns," said State Department spokeswoman Jen Psaki.
"Any transfer of arms from Iran to a third country is in direct violation of UNSCR 1747.
"We are seeking clarification on the matter from the government of Iraq and to ensure that Iraqi officials understand the limits that international law places on arms trade with Iran," Psaki said, referring to the UN resolution that imposed an arms embargo on Iran.
A US official said such a deal could further complicate Washington's approach to negotiating with Iran on easing international sanctions over its nuclear programme, which the West suspects is aimed at producing bombs. Iran says its aims are purely peaceful.
A diplomatic source close to the UN Security Council's Iran sanctions committee was aware of the Iran-Iraq arms deal and voiced concern about it, while declining to disclose details about those concerns. The source spoke on condition of anonymity.
The official documents showed that six of eight contracts were signed with Iran's Defence Industries Organisation to supply Iraq with light and medium arms, mortar launchers, ammunition for tanks as well as artillery and mortars. A final two contracts were agreed to with the state-owned Iran Electronic Industries for night-vision goggles, communications equipment and mortar-guiding devices. One of the contracts includes equipment to protect against chemical agents.
Officials from the Iraqi and Iranian defence ministries signed the agreements, according to the documents. They did not list a timetable for deliveries and it was not possible to confirm whether they had taken place.
One Western security official said US government experts believed an Iranian-Iraqi arms deal had been in the works for some time. The growing friendship between the two countries is disconcerting for the US, which has accused Iran of having shipped arms to the Syrian government through Iraq.
The weapons purchases amount to a drop in the ocean for Iraq, which receives most of its arms from the US and has also bought weapons and helicopters from Russia and other countries.
But they are politically significant as Maliki pursues a third term in office. Iraqi politicians consider Iran's blessing as a necessity for seeking power.
Maliki won his second term in 2010 only after the Iranians exerted pressure on recalcitrant Shiite parties on his behalf.
Many Iraqis accuse Iran of funding Iraqi Shiite militias, who have seen a resurgence in the last two years as Iraq's security has deteriorated.
"We have here a political and not a military deal," said Amman-based Iraq analyst Yahya al-Kubaisay, from the Iraqi Centre for Strategic Studies, a think tank filled with political opponents of the Shiite-led Iraqi government.
"On one hand it is aimed at financing Iran, which is desperately in need of dollars, and on the other it is clearly aimed at winning Tehran's support for Maliki's third term."