By Waleed Ibrahim

BAGHDAD, Aug 6 (Reuters) - Iraq's parliament has postponed by at least a month a vote on an elections law that has stoked tensions with minority Kurds, delaying even further local polls seen as a key test for Iraq's fledgling democracy.

Lawmakers met on Wednesday, on the eve of parliament's summer recess, in the hope of finding a compromise on the law which will allow the provincial polls to be held and will shape the future of the contested city of Kirkuk.

Kurds, who regard Kirkuk as their ancestral home, want to include the northern city in the semi-autonomous Kurdish region. The oil-rich city's Arabs and ethnic Turkmen want it to remain under central government authority.

The controversy has exposed deep political fissures as Iraq seeks to build on a sharp drop in violence five years after the U.S.-led invasion to topple Saddam Hussein.

U.S. President George W. Bush has phoned political leaders in recent days and the United Nations has proposed compromise steps to defuse tensions.

Deputy Speaker Khalid al-Attiya, a member of Iraq's largest Shi'ite bloc, said the election law would most likely be taken up after the summer break ends on Sept. 9.

"The issue of the provincial elections law has been delayed until the end of the summer recess. It is possible a special session could be held before this time, but this is unlikely," he said.

A U.N. spokesman in Baghdad, Said Arikat, said that delaying the bill meant it would be hard to hold an election this year.

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 then vetoed the bill as unconstitutional, given the absence of the Kurds, a big parliamentary faction. It was sent back to parliament for lawmakers to reach a compromise.

The polls had been originally scheduled for Oct. 1 but the latest delay could push the date well into 2009. Washington has pushed for elections to be held as soon as possible and hopes they will spur reconcilation among rival political groups.

Many Sunni Arabs and some Shi'ites boycotted the last provincial vote in 2005, and their political alienation has fuelled instability since then.

Kurdish politician Fouad Masoum said this week that Kurdish lawmakers supported the latest U.N. plan, which would have allowed local polls to take place except in Kirkuk, whose fate would be dealt with in a separate law later.

"Our stance is to go ahead with the bill and not postpone it. With great regret, what happened has happened, and it was not our fault," he said.

The issue has also triggered protests, including one last week in which a suicide bomber killed more than 20 people. (Additional reporting by Mohammed Abbas; Writing by Missy Ryan; Editing by Angus MacSwan)

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