Chinese engineers have inaugurated an Iraqi oil field, the first major oil development deal secured by a foreign firm since the 2003 fall of Saddam Hussein, officials said on Thursday.

The project, which follows the signing of a three-billon-dollar contract late last year, revives a deal signed in 1997 that granted China exploration rights to Al-Ahdab oil field in central Iraq.

"This project will provide a number of jobs and opportunities for investment," Oil Minister Hussein al-Shahristani said at a ribbon-cutting ceremony on Wednesday, quoted in an official statement.

"It will provide the province with electricity and power to operate the power station in Zurbadiyah and to help contribute to development and prosperity," he said.

Al-Ahdab's oil production is expected to reach 25,000 barrels per day in the first three years and expand to up to 115,000 barrels per day in six years, according to China National Petroleum Corp (CNPC).

The contract, signed in November in Baghdad, allows CNPC and another Chinese company, Zhenhua Oil, to develop Al-Ahdab oil field in the province of Wasit for 23 years.

"We look at this opportunity as the start of rebuilding the prosperity of Wasit," said Abd al-Latif Hamad Tarfah, the provincial governor. "This is the first investment project in Wasit and we hope it will last a long time."

After China won the rights in the 1997 deal, then valued at 700 million dollars over 23 years, activities were suspended due to United Nations sanctions and then by security issues following the US-led invasion in 2003.

Output from the field will mostly be exported but some will be used to fuel power generation stations nearby to ease electricity shortages.

Baghdad said earlier it had managed to change the previous joint venture contract into a service agreement, under which CNPC would charge a service fee of six dollars a barrel, decreasing eventually to three dollars.

The Al-Ahdab oil contract, while now strictly a service deal, will be worth an estimated three billion dollars to the Chinese and offers them an entry into Iraq ahead of Western majors.

Iraq has 115 billion barrels of proven oil reserves -- the third largest in the world -- and at the end of February was producing 2.310 million barrels per day.

China's state oil firms are scouring the world for resources to power what is now the globe's third largest economy.