The five British men have been held captive for almost two years
An imprisoned militant whose release has been demanded by the kidnappers of five British hostages has been freed from US custody, officials have said.
Shia leader Laith al-Khazali was handed over by the US military in Iraq to the Iraqi authorities on Saturday.
The BBC's Frank Gardner said the move was "the most promising news" since the Britons were seized in 2007.
But British and US officials have stressed that the handover is not part of a prisoner exchange, he added.
Members of a group calling itself the Islamic Shia Resistance in Iraq seized the British hostages - computer expert Peter Moore and his four bodyguards - in May 2007.
Laith al-Khazali is the leader of another group, Asa'ib al-Haq or the Leagues of the Righteous.
He is one of several imprisoned militants whose freedom has long been demanded by the kidnappers and our correspondent said his transfer could pave the way for at least one of the Britons to be released.
In a statement on Tuesday, the UK Foreign Office confirmed the handover had taken place.
Peter Moore seemed 'healthier' in the most recent video, his family said
"The government of Iraq is engaged in a reconciliation process with groups willing to set aside violence in favour of political engagement," a spokesman said.
"Part of the process is the releasing of coalition detainees, or their transfer into the custody of the government of Iraq."
The five hostages were seized when they were working in Baghdad's Iraqi Finance Ministry by gunmen disguised as police officers.
Except for Mr Moore, who had been working for American management consultancy Bearingpoint, they have not been fully identified for security reasons.
But their family and friends have made several public appeals for their return.
Foreign Secretary David Miliband has also called for their "immediate and unconditional" release.
The kidnappers have released several videos of the captives, including one warning that a hostage would be killed unless British troops withdrew from Iraq.
In the latest footage, released in March, Mr Moore spoke in the plural which indicated the captives were being held together and not separately as had been previously thought by their relatives.
This also gave new hope to the mother of one of the kidnapped contractors who was last year reported to have committed suicide.