Iraq's U.S.-trained Counter Terrorism Service has taken control of the provincial government headquarters in Kirkuk, and the Iraqi flag is flying over disputed areas, Reuters reported. The Iraqi national army also took over the North Oil Company, a refinery in Kirkuk, oil fields and an air base, according to news agencies.
Reports indicated that the Iraqi troops had not faced significant opposition from Kurdish peshmerga militia fighters in the area. However, the General Command of the Peshmerga Forces responded strongly to the advance, local news reported.
"The attack is a clear declaration of war against the people of the Kurdistan Region," the General Command said in a statement.
The Iraqi units went on the move toward Kirkuk around midnight local time in order to "safeguard" the area, military commanders said.
An aid group said several peshmerga fighters and Iraqi soldiers had been killed in a clash south of Kirkuk overnight, according to Reuters. There were no other reports of fatalities.
The U.S. Central Command, which coordinates the campaign against Islamic State militants in Iraq and Syria, said it was aware of gunfire exchanges overnight. The engagement appeared to be a misunderstanding that occurred in the dark of night, it said on its website.
"We continue to advocate dialogue between Iraqi and Kurdish authorities. All parties must remain focused on the defeat of our common enemy, ISIS, in Iraq," Maj. Gen. Robert White said in a statement.
The Iraqi military said it encountered only light resistance as it took over the oil installations and the Kurdish-controlled K-1 air base, which used to be an Iraqi air force facility, Dow Jones reported.
"Just as the battle against ISIS seems to be finally ending, there is a new theater of battle emerging in Northern Iraq," John Kilduff, partner at energy-focused investment manager Again Capital, told CNBC.
The Iraqi maneuvers come after Iraq's semi-autonomous Kurdistan region and other Kurdish-dominated areas including Kirkuk held an independence referendum last month.
The Kurds are a separate ethnic group from the Arabs and are primarily Sunni Muslims. The Iraqi army is dominated by Arabs who are Shiite Muslims.
A map of Kirkuk, showing the proximity of the K-1 air base, marked at upper left. Courtesy Google Maps.
In a Friday research note, risk consulting firm Eurasia Group warned that Iraqi Prime Minister Haider al-Abadi "is increasingly committed to re-establishing central government control over the territories contested by Baghdad" and the Kurds.
Iraq is OPEC's the second-biggest oil producer. Kurdish-controlled areas of Iraq are among the most productive in the country and contain much of its energy infrastructure.
"Oil prices could spike a lot higher on this development because this time is different, after years of war in the region. The battle, finally, is for the oil, and no other reason. In other words, here we go," Kilduff said.
Kilduff added that oil infrastructure, which was largely spared in previous fighting, "will likely be the main target this time around."
The Pentagon has urged both sides to "avoid additional escalatory actions" and warned that it opposed any destabilizing actions that detracted the fight against Islamic State militants, Reuters reported on Monday.
The Kurds have pressed for their own nation-state for more than a century, but that movement gained momentum after the U.S. invasion of Iraq in 2003 and the rise of the so-called Islamic State, or ISIS, that followed.
Kurdish fighters were among the most effective troops for the Iraqi government during the Iraq War, and they have easily been the most successful force on the ground against ISIS, which swept the regular Iraqi army from the field in 2014.
"In the summer of 2014, Kurdish forces exploited the collapse of the Iraqi army in northern parts of the country to move into areas claimed both by the region and by federal authorities, especially oil-rich Kirkuk. The central government remains unlikely to accept this presence," Eurasia Group said.
Kurdistan includes parts of Iraq, Iran, Turkey and Syria. Kurdish independence is opposed by every major player in the region — even including the United States, which has fought closely alongside the Kurds since 2003.
"The Kurds have no friends — Turkey, Iraq, Iran, Russia, and the U.S., among others, have decried their independence push," Kilduff said.
—CNBC's Patti Domm contributed to this report
Correction: This report has been updated to reflect that Kirkuk voted in favor of independence without formally declaring it.