Iranian soldiers have crossed the border with Iraq and seized control of an oil well, according to officials from Iraq and the United States.
A group of 11 men has raised an Iranian flag and remain at the site, Iraq's Deputy Interior Minister Ahmed Ali al-Khafaji
told Sky News.
"Iraq has not begun military action in response and its forces are waiting for orders." he added.
Iraq's National Security Council is expected to hold an emergency meeting, and discuss what response is warranted.
A spokesman for the US military confirmed the soldiers had taken control of the oil well but added it was in "disputed territory" near the border and has happened at least three other times this year.
"There has been no violence related to this incident and we trust this will be resolved through peaceful diplomacy between the governments of Iraq and Iran," he said.
United States Colonel Peter Newell, said: "What happens is, periodically, about every three or four months, the oil ministry guys from Iraq will go... to fix something or do some maintenance.
"They'll paint it in Iraqi colours and throw an Iraqi flag up.
"They'll hang out there for a while, until they get tired, and as soon as they go away, the Iranians come down the hill and paint it Iranian colours and raise an Iranian flag.
The particular well that was seizes holds about 1.55 gallons of reserve oil, and is extremely close - just three tenths of a mile away - from the Iranian border.