The question of legal immunity for US troops remains a "sticking point" between the United States and Iraq in talks over a possible US military presence beyond a year-end deadline, a defense official said Monday.

The Pentagon insisted negotiations were still underway and denied media reports that they had collapsed over the dispute about shielding American soldiers from Iraqi prosecution.

But as the clock ticks on a troop withdrawal deadline that expires at the end of December, the two sides have so far failed to reach an agreement on the make-or-break question of legal safeguards, said the senior defense official, who spoke on condition of anonymity.

"If there are no legal protections then our ability to support will be extremely limited. So that's a major sticking point right now," the official told AFP.

To try to get around the impasse over legal immunity, the US administration is "looking at all the different options right now," including expanding personnel at the US embassy and using more contractors, the official said.

Defense Secretary Leon Panetta said he remained hopeful that discussions with Baghdad, led by the US commander there, General Lloyd Austin, and US ambassador James Jeffrey, would produce an agreement.

"At the present time, I'm not discouraged because we're still in negotiations with the Iraqis," Panetta told reporters at the Pentagon after meeting Italy's defense minister.

"We're hoping, ultimately, that they'll be able to find an agreement here."

The 39,000 remaining US troops in Iraq must withdraw by the end of the year under a bilateral security accord, which remains in force if no post-2011 deal is agreed.

Without an accord in place, the US military is proceeding with a withdrawal of troops and equipment from Iraq to meet the deadline, spokesman Captain John Kirby told reporters.

Recent comments from Iraqi and US leaders have exposed the rift over legal protections for American troops, with US officials insisting their soldiers must be shielded from Iraqi prosecution.

US commanders had hoped to keep a small contingent of American troops on the ground in Iraq after 2011 to help train Baghdad's forces, bolster the country's fledgling air and naval defenses as well as counter the influence of neighboring Iran, which Washington accuses of arming Iraqi militants.

The discussions with Iraq were focused on a "limited" training mission for US troops that would go beyond the standard security cooperation efforts handled by American embassies in other capitals, officials said.

"That broader mission remains on the table for discussion," Pentagon press secretary George Little said.

The talks have dragged on in Baghdad despite impatience from US military and defense chiefs who have publicly urged Iraqi leaders to move quickly, citing the challenge of managing a major withdrawal.

In July, Panetta voiced his frustration with Iraqi leaders, saying "dammit it, make a decision" during his first visit to Baghdad as Pentagon chief.

But asked Monday if there was a "drop-dead" deadline to reach an agreement before time runs out, Panetta said: "Not at this point."

Republican Senator John McCain, who lost to President Barack Obama in the 2008 election, accused the administration of dithering over the issue, which he said allowed supporters of pro-Iranian cleric Moqtada al-Sadr to block a possible deal.

"They lost many opportunities because of their failure to come up with a specific plan, strategy, as to how many troops we needed," he told AFP.

"And they fiddled while the Iranians and Sadrists increased their influence to the point where we are now in a deadlocked situation."