By Raya Jalabi

KIRKUK, Iraq (Reuters) - Iraq's oil-producing region of Kirkuk will vote in a referendum on Kurdish independence on Sept. 25, its provisional council decided on Tuesday, a move that could increase tension with Arab and Turkmen residents.

The ethnically mixed region is claimed by both the central government in Baghdad and the autonomous Kurdistan Regional Government (KRG) in northern Iraq.

The vote is "definitely happening" on Sept. 25, Kirkuk Governor Najmuddin Kareem told Reuters after a majority of the provincial council voted in favor of taking part.

Only 24 of the 41 council members attended Tuesday's vote, with 23 voting in favor of participating in the referendum. One abstained.

The remaining council members - all Arabs and Turkmen - boycotted the vote. Instead, they issued statements denouncing the vote as "unconstitutional."

The KRG had said it was up to the local councils of Kirkuk and three other disputed regions of Iraq to decide whether to join the vote on the independence of the Kurdish region.

The vote in the disputed regions would amount to deciding whether to join the KRG or remain under the jurisdiction of the Shi'ite Arab-led government in Baghdad. Baghdad says the referendum is unconstitutional.

Speaking to reporters following a meeting of his council of ministers, Iraqi Prime Minister Hayder al-Abadi denounced Tuesday's decision as "wrong".

"Issues are not handled like this," he added.

Sunni MP Mohammed al-Karbouli told Reuters that Tuesday's decision "would help trigger ethnic fighting" in the region and would also "extend the life" of Islamic State in the country.

"It's a stark violation of the constitution and a determined move to confiscate the rights of the Arab and Turkmen in Kirkuk. The government should intervene to stop this violation," al-Karbouli said.

The United States and Western nations fear the vote could lead to conflicts with Baghdad and neighboring Turkey and Iran, which host sizeable Kurdish populations, diverting attention from the fight against Islamic State militants in Iraq and Syria.

A senior Kurdish official has said Iraq's Kurds might consider postponing the referendum in return for financial and political concessions from the central government.

"Those who ask for a postponement - including Baghdad and the U.S. and Europe and whoever - should give us a time," Kareem said. "Why don't they propose a date?"

Kurdish peshmerga fighters seized control of Kirkuk in 2014 when the Iraqi army fled from Islamic State's offensive across northern and western Iraq, preventing the region's oil fields from falling into the hands of the militants.

The Kurds have been seeking an independent state since at least the end of World War One, when colonial powers divided up the Middle East and left Kurdish-populated territory split between modern-day Turkey, Iran, Iraq and Syria.

(Reporting by Raya Jalabi; Editing by Larry King)