"The issue of contractors including (foreign) security contractors is a sensitive one, is a significant one," David Satterfield, the US State Department's top Iraq adviser told reporters in Baghdad's heavily fortified Green Zone.

"There are outstanding issues, obviously, including issues focused on the security side."

The presence of tens of thousands of foreign private security contractors has been heavily criticised, especially after last year's brutal massacre of 17 Iraqis in Baghdad by Blackwater company which offers protection to US officials in Iraq.

These contractors, however, enjoy immunity from Iraqi law. The contract of Blackwater was also recently renewed for another year.

Negotiations for a long-term US military presence in Iraq come amid strong criticism from Baghdad and former foe turned friend Tehran over the details of the deal which aims to maintain American soldiers in the country beyond 2008.

Iraqi media reports have suggested the United States is seeking to keep as many as 50 military bases indefinitely in Iraq, control the nation's air space, and grant its troops and foreign private contractors continuing immunity from prosecution under Iraqi law.

American diplomats and military officials have vehemently denied that Washington wants to create "permanent" bases and insist that the pact is no threat to any of Iraq's neighbours including Iran, the US's arch enemy.

"We will do nothing in these negotiations that in any way could harm or weaken the Iraqi government. We will do nothing in these negotiations that is not ultimately fully transparent," insisted Satterfield.

"(The negotiatons) are not based upon pressure, they are not negotiations based upon dictate by the United States, there are no demands in these negotiations. They are discussions designed to produce a meaningful partnership."

Iraqi politicians -- supporters and opponents of Prime Minister Nuri al-Maliki -- are unconvinced, and have expressed fear that Iraqi sovereignty could be compromised under such a framework.

Iraq went so far last week as to say it had a "different vision" from the US on the issue, while Maliki on his official three-day visit to Tehran that ended Monday also sought to reassure the leaders of majority Shiite Iran.

"We will not allow Iraq to become a platform for harming the security of Iran and neighbours," Maliki said in Tehran.

But Iranian supreme leader Ayatollah Ali Khamenei told Maliki that the continued presence of US troops was Iraq's "fundamental problem."

US President George W. Bush and Maliki agreed in principle last November to sign a Status of Forces Agreement (SOFA) by the end of July.

More than five years after the March 2003 invasion of Iraq, there are still around 150,000 US troops deployed in Iraq, even after the ongoing drawdown of the additional personnel sent out under the controversial surge policy announced in February last year.

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