BAGHDAD (Reuters) -Under pressure from Washington to stem the flow of dollars into Iran, Iraq's prime minister sent elite counter-terrorism forces more accustomed to battling Islamist militants to shut down dealers smuggling the currency to the Islamic Republic.

Saturday's raids in Baghdad represent an early test for Prime Minister Mohammed al-Sudani, who took office in October after more than a year of political paralysis and must now tread a delicate diplomatic path.

The New York Federal Reserve introduced tighter controls on international dollar transactions by commercial Iraqi banks in November.

The move was designed to stop the illegal siphoning of dollars to Iran and apply more pressure along with U.S sanctions imposed over Tehran's nuclear programme and other disputes, leaving Tehran struggling to source dollars.

Aqeel al-Fatlawi, a Shi'ite lawmaker, accused Washington of deliberately using the new regulations as a political weapon.

"Americans are using the dollar transfer rigid restrictions as warning messages to Prime Minister Sudani to stay tuned with the American interests. 'Working against us could lead to bringing down your government' - this is the American message."

A senior banking official said the United States sent a clear message to Iraqi officials: comply with the new regulations or the Iraqi central bank will face fines.