Exxon's decision to quit the $50 billion project will exacerbate tensions between Baghdad and the autonomous Iraqi Kurdistan, where Exxon signed oil deals seen as more lucrative but dismissed by the central government as illegal.

Exxon is now at the heart of the long-running dispute over oil reserves and territory between the Arab-led central government and ethnic Kurds who have run their own regional administration in northern Iraq since 1991.

"Exxon Mobil sent a letter to the South Oil Company expressing its wish to sell its stake in West Qurna 1 oilfield," Abdul-Mahdy al-Ameedi, director of Iraq's contracts directorate, told reporters.

Baghdad would reply to the letter by Sunday, another oil official said. But it is still unclear who could replace Exxon in the huge oilfield which pumps around 400,000 barrels per day of crude, with minority partner Royal Dutch Shell.

In a separate decision, Iraq asked Kuwait Energy to acquire shares of Turkey's state-owned TPAO in its exploration block 9 oilfield after Iraq's cabinet decided to expel the Turkish company from the project.

The measure will mean Kuwait Energy will hold 70 percent and Dragon Oil PLC 30 percent in the project. TPAO holds a 30 percent stake in the block.

"The cabinet rejected the approval of Turkey's TPAO as a partner," al-Ameedi said. "The government decision will not affect TPAO's other activities in Iraq. The expulsion is only for this oil contract."

He refused to give any reason for the decision, but the expulsion comes at a time of tensions between Baghdad and Ankara after Turkey accused Iraqi Prime Minister Nuri al-Maliki of sidelining Sunni Muslims in Iraq's political crisis.

(Reporting by Ahmed Rasheed; writing by Patrick Markey)

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