* Iranians handed to Iranian embassy staff

* Detentions a source of U.S.-Iranian tension

* U.S. says no deal was reached

(Adds U.S. State Department comment)

By Khalid al-Ansary

BAGHDAD, July 9 (Reuters) - Five Iranian officials detained by the U.S. military in Iraq for up to two years were released on Thursday and handed over to Iranian embassy staff by Iraqi authorities, an Iranian embassy official said.

The capture of the Iranians, who include officials U.S. forces accused of arming Shi'ite Muslim militias at the height of Iraq's sectarian war, stoked tension between Tehran and Washington, also at odds over Iran's disputed nuclear programme.

The men were first handed over by their U.S. jailors to Iraq's Shi'ite Muslim-led government, which is friendly with Iran, and then transferred into Tehran's care.

"We received them and they are in good health, thank God. They are at the embassy in Baghdad," said an embassy spokesman.

The White House in Washington said it handed over the men at the request of the government in Baghdad, in compliance with a U.S.-Iraq security agreement.

Under a bilateral security pact that took effect in January, the United States must gradually transfer more than 10,000 detainees it still holds to the Iraqi government to be either charged in local courts or released.

A vast prison camp in southern Iraq, and a smaller one near Baghdad airport, will be closed or handed to Iraq, ending a controversial programme of detention without charge that has been a feature of the U.S. presence in Iraq during six years of war.

Iranian state television said three of the men were diplomats detained in a 2007 U.S. raid in Iraq's northern city of Arbil, while the rest were "two other Iranians kidnapped elsewhere in Iraq by the U.S. occupation troops."

Five men were originally detained in Arbil in 2007, but two of them were later released. There was no further information about the additional two Iranians released on Thursday.

Iran's official IRNA news agency quoted the ambassador in Baghdad, Hassan Kazemi-Qomi, as saying the freed Iranians would visit Shi'ite holy places in Iraq before returning to Iran early next week.

DIPLOMACY

U.S. President Barack Obama has been trying to improve ties with Iran since he took office in January, offering a new beginning in ties if Iran "unclenches its fist".

But last month's disputed presidential election in Iran has again frayed relations between Iran and the West, with Iranian officials accusing the United States and Britain of interfering in its internal affairs.

In Washington, a State Department spokesman denied speculation the five were freed as part of Obama's policy of trying to engage Iran.

"That's not correct," he said. He also denied they were released as part of a trade for Iranian-American journalist Roxana Saberi, who Iran convicted of spying but freed in May.

"There's no other deal or any prisoner exchange."

The Iranians were detained in Arbil on suspicion of being members of the Iranian Revolutionary Guards' elite Qods force, which Washington says backs terrorists.

Washington has long accused Iran of fomenting violence in Iraq by arming, funding and training Shi'ite "special groups", and tasking them with attacking U.S. troops or Sunni Muslim targets.

Iran rejects the charge and instead says the United States is to blame for the years of sectarian slaughter and insurgent violence that almost tore Iraq apart after the 2003 U.S.-led invasion.

Iran's Foreign Ministry said the five were diplomats who had been held contrary to "all international conventions". (Additional reporting by Hossein Jaseb in Tehran, Aseel Kami in Baghdad and David Alexander in Washington; Writing by Fredrik Dahl and Michael Christie; editing by Richard Meares)

AlertNet news is provided by