Iraq's cabinet has ratified a deal with two foreign energy companies to develop the giant southern oilfield in Rumaila.
The contract with Britain's BP and CNPC of China is the first major deal with foreign firms to be signed since an international auction in June, the BBC reports.
The project aims to almost triple output at the 17-billion-barrel field, increasing it by 2 million barrels a day.
Thirty-two companies, including Shell, Exxon, BP and Total, bid for contracts to develop six oil fields and two gas fields in June's televised auction, Iraq's first big oil tender since the invasion of 2003.
However, most withdrew at the last moment, saying the terms on offer were unfavourable.
BP and CNPC agreed to run the Rumaila field - near the southern city of Basra - after US giant Exxon Mobil turned it down.
Iraq's oil ministry offered 20-year service contracts on the field, stipulating that companies would not be paid anything until a minimum level of production - close to the amount currently being produced - was reached.
Above that point, the companies would be paid a certain amount per barrel up to a maximum level stipulated by the ministry.
The maximum amount being offered by the ministry in the case of the Rumaila field was significantly less than the oil companies were asking for.
Exxon Mobil declined to accept the maximum payment, but BP and CNPC, which had originally asked for $US4 a barrel, agreed to do the work for $US2 a barrel.
Iraq has the world's third largest oil reserves, but production lags behind potential due to a lack of investment.
Analysts say the country's total daily output of 2.4 million barrels is lower than it should be due to problems stemming from sanctions against former Iraqi governments, lack of investment and insurgent attacks.
