Washington  - US President George W Bush congratulated Iraqi lawmakers for reaching an agreement Wednesday on an election law that will allow voters to chose new local governments in most provinces by the end of January.

"Today's action demonstrates the ability of Iraq's leaders to work together for the good of the Iraqi people and represents further progress on political reconciliation," Bush said in a statement.

Completing an election law was seen as an essential step toward reconciling tension between Iraq's various ethnic groups, along with an oil law to ensure revenue is fairly shared between Sunnis, Shiites and Kurds.

The Bush administration has said that any progress in security must be met with the key political steps to help Iraq emerge from years of bloody turmoil and establish a viable democratic government.

Sunnis, suspicious 2005 elections were tilted to the advantage of the more populous Shiites, largely boycotted the polls.

"Elections in Iraq can now be held under a new system that will give Iraqis more say in choosing their elected representatives," Bush said. "Nothing is more central to a functioning democracy than free and fair elections."

The provincial election law calls for voting in 14 of Iraq's 18 provinces by the end of January. Elections previously scheduled for October had been postponed because the Iraqi parliament could not agree on a law, mainly because of the dispute in Kirkuk, the northern city with a majority Kurdish population in an oil rich region of the country.

The parliament decided to hold off on a law governing elections for Kirkuk in Wednesday's agreement. Elections will be arranged for a later date there and in three other provinces.

Kurds had argued that they should control the Kirkuk under the guidance of their autonomous region in northern Iraq, while minority Arabs and Turkmen sought greater authority from the central government in Baghdad. (dpa)