The Iraqi government is to investigate recent violence in Basra that resulted in a British army raid to free two of its soldiers from Iraqi custody.
Tensions are still running high in Basra
A team from Baghdad will hold talks with British forces and local officials in the southern Iraqi city.
A UK military spokesman said this was not an attempt to mediate.
Officials in Basra are refusing to co-operate with UK troops. They are demanding an apology and handover of the two soldiers to the Iraqi police.
The officials also want compensation for damage caused during Monday's raid and a "guarantee that it does not happen again".
They say the families of five people allegedly killed in clashes involving British troops must also be compensated.
The British military spokesman said London would not respond to the demands until it had completed its own investigation.
The UK had earlier defended its action, saying the soldiers were handed to militiamen by rogue elements in the police.
British troops have reduced their presence on the Iraqi city's streets.
Iraqi Prime Minister Ibrahim Jaafari and Defence Secretary John Reid said earlier the unrest had not strained relations between the two countries.