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By Ahmed Rasheed and Muhanad Mohammed
BAGHDAD (Reuters) - Iraqi lawmakers passed a long-delayed election law on Sunday to pave the way for a January poll, after parliament sidestepped a potentially explosive row over the oil-producing city of Kirkuk.
Prolonged wrangling over the law had thrown the election date in doubt, and U.S. officials had feared the row would hit plans to draw down U.S. troops next year.
"Tough challenges remain and I am sure there will be difficult days to come but this agreement advances the political progress that can bring lasting peace and unity to Iraq, and allow for an orderly and responsible transition of American combat troops out of Iraq by next September," U.S. President Barack Obama said.
The parliamentary election is seen as a crucial test for the world's 11th largest crude oil producer as it emerges from carnage unleashed by the U.S. invasion in 2003.
After weeks of deadlock, a compromise over the conduct of the poll in Kirkuk was approved by 141 out of 196 lawmakers, in a rowdy session broadcast live on state television.
Kurds consider Kirkuk their ancient capital, want to make it part of their northern region and sought to use up-to-date voter rolls to reflect an increase since 2003 in their numbers there.
Arabs and Turkmen say the city should remain under central government authority and believe Kurds have stacked Kirkuk to tip the demographic balance.
The law ended up using current voter registrations but made the election result subject to a review if there was an unusual increase in registered voters in the last five years. The consequences of a possible review were left ambiguous.
Iraqi lawmakers say the legislation allows for the election to be held between January 16 and 31. U.S. Ambassador Chris Hill said he understood the actual date had been set for January 23.
Analysts said lawmakers kicked the status of Kirkuk, whose crude fields contain about 13 percent of Iraq's proven oil reserves, down the road to be solved later.
"The Kirkuk situation is still on hold. It's like a bomb waiting to be activated. There's no agreement at all on that," said political analyst Hazim al-Nuaimi said.
Kirkuk is one of several flashpoints that could lead to clashes between Baghdad's Arab-led government and Kurds who have enjoyed a large degree of independence since the 1991 Gulf war.
U.S. officials, fearful Kurd-Arab tensions might be the seed of Iraq's next war, said they welcomed parliament's solution.
"The whole trick was to make people understand that this election, these election rules, these voter rules, cannot be used to try to get a leg up in the Kirkuk negotiations," said U.S. envoy Hill. "So we tried to very clearly fence it off."
Lawmakers began the Sunday session by voting article-by-article, but quickly moved to pass the entire bill once the sticky issue of Kirkuk reared its head.
"We as Turkmen express our total satisfaction about what we achieved by passing the law and preserving the identity of Kirkuk," said Abbas al-Bayati, a lawmaker from Kirkuk and member of Prime Minister Nuri al-Maliki's State of Law alliance.
"Kirkuk is not Kurdish, it's not Arab, it's an Iraqi city."
The poll law also gave voters the right to choose individual candidates -- known as an open list system -- as opposed to the legislation in the previous national election that only allowed the electorate to choose a party.
Political analysts say the open list system is likely to benefit Maliki, who is campaigning for the election by seeking credit for a sharp fall in overall violence.

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