Aug. 25--CAIRO -- A group of Japanese firms led by Nippon Oil Corp. has agreed in principle with the Iraqi government to obtain the right to develop an oil field in Iraq in a deal that would be the biggest of its kind for Japanese companies, sources close to the negotiations said Monday.

The move came as Iraq, which has the world's third-largest proven crude oil reserves, is trying to attract foreign investment in a process seen as crucial to the future of the war-battered country.

The agreement suggests that the Japanese group has outstripped Eni S.p.A, an Italian energy firm that is also in talks with the Iraqi government for development rights in the southern Iraqi city of Nasiriyah. Baghdad is expected to announce next month a finalized list of companies that will be involved in the project.

Meeting the same day in Istanbul, officials from Nippon Oil, Japan's largest oil wholesaler, and the Iraqi delegation, led by Oil Minister Hussain al-Shahristani, signed a memorandum of understanding while agreeing to meet again soon in Baghdad, Iraqi Deputy Oil Minister for Exploration Abdul Kareem al-Leavy said.

"We have reached a solution on the payment with Nippon (Oil)," Leavy, who joined the meeting, told Kyodo News, referring to the most crucial issue to be addressed during the talks.

At the meeting, Nippon Oil made a new proposal concerning the cost of developing the field, he said without elaborating.

The Nasiriyah field is expected to produce 600,000 barrels a day in two years' time. The estimated output is equivalent to more than 10 percent of Japan's daily consumption.

If the deal is finalized, the oil field will be the biggest in which Japanese companies play a leading development and production role, with Nippon Oil and others required to raise the field's output capacity from the current 300,000 barrels a day during a two-year period.

In Tokyo on Tuesday, Japanese Minister of Economy, Trade and Industry Toshihiro Nikai reiterated the government's intention to give full backing to the Japanese companies involved, which include oil explorer Inpex Corp. and engineering firm JGC Corp.

But speaking at his regular press conference, he cautioned against excessive optimism, saying they "are still in the midst of adjustment and negotiations." Nippon Oil only said, "Negotiations are in progress but we've not heard any agreement has been reached."

In June, a consortium led by BP plc of Britain and China National Petroleum Corp.