With its capture of Koi Sanjaq, the Kurdistan Democratic Party (KDP) succeeded in pushing its Iranian-sponsored rivals farther away from the city of Arbil, which lies about 30 miles to the north-west.
As the two groups battled east, south east and north-east of Arbil, there was no sign that Iraqi troops had helped their KDP allies, and no Iraqi soldiers were seen moving on the roads south or east from Arbil.
The United States has warned Iraq and Iran against penetrating into Kurdish areas, and both those countries have offered mediation and called on the Kurds to stop fighting.
The US Assistant Secretary of State, Robert H. Pelletreau, planned to travel to the region this weekend to meet with the two Kurdish leaders, officials in Washington said.
The KDP began its counter-offensive before dawn yesterday and its fighters entered Koi Sanjaq at about noon, having expelled forces of the Patriotic Union of Kurdistan (PUK).
Heavy shelling and non-stop gunfire could be seen and heard from the town. One burst of KDP shelling, presumably targeting a PUK stronghold, set fire to an area a few miles outside town.
Hundreds of KDP guerrillas were massed at the entrance to Koi Sanjaq, but it was not clear whether they had taken part in the battle to seize the town or had been bussed in soon afterwards.
It was the third time in a month this town had changed hands.