The chances of key local polls taking place in Iraq this year all but vanished yesterday after Parliament failed to pass an law on elections because of a row over the contested city of Kirkuk, which threatens to heighten Arab-Kurdish tensions.

Lawmakers will meet again after a month-long summer break to continue the debate, to the disappointment of the United Nations, Britain and the United States. They see the polls as a crucial step towards national reconciliation.

Mahmud al-Mashhadani, the parliamentary speaker, said that MPs would also set up a committee under the supervision of the UN to discuss further the text of the legislation to govern the polls, which was originally scheduled to take place by October 1.

Andrew Gilmour, political director of the United Nations Assistance Mission for Iraq (UNAMI), said that the world body would continue to offer help.

He said: “An important opportunity to pass an elections law was missed. We are still counting on the Iraqi leaders to reach an agreement through dialogue to allow elections, and as quickly as possible.”

Disagreement between Kurdish politicians and a body of Sunni Arabs and Turkomen over an article in the legislation that relates to Kirkuk created the impasse that several attempts at re-drafting failed to overcome.

Even if an accord is reached after Parliament resumes on September 9, it will almost certainly be too late to hold elections this year. The United Nations has said that the law needed to be passed by the end of last month at the latest to achieve such a timeframe.

Dragging the polls into 2009 will be a blow for the Iraqi Government, which is under pressure to make the most of a drop in violence to its lowest level in four years by progressing on the political front.

The Kirkuk row has also inflamed old tensions between Iraq's majority Arabs and its minority Kurds, who enjoy semi-autonomy in Iraqi Kurdistan in the north and are keen to extend their region's boundaries to incorporate oil-rich Kirkuk.

Last week a female suicide bomber killed and wounded scores of people who were holding a protest in the northern city about the election law.

A senior UN official in Baghdad said that all parties involved should use the additional time to allow tempers to settle and reason to prevail.

“While it is bad for the timeline of the elections it maybe good in terms of softening the tense atmosphere that has dominated the last few days if there is a period of down time,” the official told The Times. “But that is conditional on neither side doing provocative acts or issuing provocative statements.”

A version of the law that would have delayed a vote for Kirkuk, set up ethnic quotas for its governing council and dispersed Kurdish security forces there was passed by Parliament last month, but Kurds boycotted the vote.

President Jalal Talabani, himself a Kurd, then vetoed the bill as unconstitutional, given the walkout by a big parliamentary faction. It was sent back for lawmakers to reach a compromise.

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