The deal is worth $3bn, says the oil minister
China's state-owned oil firm CNPC has agreed a $3bn (£1.63bn) oil services contract with the government of Iraq.
The two parties renegotiated a 1997 deal to pump oil from the Ahdab oilfield, the Iraqi oil minister said.
Under the new deal, output from the oilfield will be 110,000 barrels per day, up from the 90,000 barrels forecast in the original deal.
The deal is the first major oil contract with a foreign firm since the US-led war in Iraq, reports say.
As security improves, Iraq - which has some of the biggest oil reserves in the Middle East - is trying to bring in foreign oil companies to boost crude output.
It needs billions of dollars of investment after years of war and sanctions.
Other foreign oil companies, such as Royal Dutch Shell and Exxon Mobil, are also negotiating deals with the Iraqi government.
The Iraq government says its aim is to increase crude oil production from the current 2.5m barrels per day to 4.5m by 2013.
Production is set to begin at the Ahdab oilfield three years from now and the contract will run for 20 years.
"Finally we have reached an agreement," Hussain al-Shahristani, the Iraqi oil minister told Reuters.
"The total investment of the project is expected to be about $3bn."
CNPC would own 75% of a joint venture to be set up for the contract, with the remainder held by Iraq's Northern Oil Company.
The field is located in Wasit province, 160 kilometres (100 miles) south of Baghdad, in a Shiite-dominated area that has seen sporadic violence.