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Iraq will resume war reparations to Kuwait, following an agreement between the two countries to end a debt for damaged infrastructure during the 1990-1 Gulf War.

Baghdad will contribute 0.5 percent of its 2018 oil proceeds to a fund that will eventually pay off a $4.6 billion debt to Kuwait.

It relates to damages to the Kuwait's oil infrastructure committed by Iraqi forces during the one year occupation of their southern neighbour.

Reparations were halted when the Islamic State group captured much of the oil-rich north of Iraq, leading to the near-collapse in the country's security.

The UN Compensation Commission announced on Tuesday that the two sides had agreed a proposal to pay off the remaining balance for the "unlawful invasion and occupation" of Kuwait.

"The (UNCC's) governing council welcomed receipt of a proposal for deposits to resume into the compensation fund in 2018 put forward by the government of Iraq and accepted by the government of Kuwait," the commission said in a statement.

It projects the debt to be paid off by 2021, if the percentage of oil proceeds is increased year-on-year.

Iraq, under Saddam Hussein, invaded Kuwait in 1990, declaring it the country's 19th province. Iraqi forces set fire to Kuwait's oil fields during their retreat creating thick clouds of smoke over the country.

The announcement follows a visit to Kuwait by Iraq's President Fuad Masum on Monday. 

Kuwait's KUNA state news agency said officials from the two countries had discussed the issue of reparations before the Iraqi president's arrival.