* Kurdish ministers say boycotting cabinet meetings
* Kurds angry after PM brands Arbil as militant haven
* Ministers put no timeline on suspension
* Baghdad halts cargo flights to Kurdish capital Arbil
* Kurdish leader Barzani blames Maliki for crisis
By Raheem Salman and Isabel Coles
BAGHDAD/ARBIL July 10 (Reuters) - Kurdish ministers boycotted Iraq's caretaker cabinet and authorities in Baghdad halted cargo flights to two Kurdish cities on Thursday in an escalating feud between the Kurds and the Shi'ite-led central government.
The dispute, linked to an Islamist insurgency raging in Sunni Muslim provinces of Iraq, is likely to complicate efforts to reach agreement on a new government in Baghdad to help tackle the violence.
The four Kurdish ministers withdrew from cabinet meetings in protest at Prime Minister Nuri al-Maliki's "provocative" branding of their provincial capital Arbil as a haven for the Sunni militants who have seized much of north and west Iraq.
The gains by the Islamic State and other fighters pose the gravest security challenge to Maliki's Shi'ite-led government since the withdrawal of U.S. troops in 2011 and raise the spectre of Iraq fragmenting along sectarian and ethnic lines.
Kurds exploited the turmoil to take control of the city of Kirkuk and its huge oil reserves, achieving a long-held dream, and their leader Massoud Barzani told his parliament last week to prepare a referendum on independence, infuriating Baghdad.
A senior Kurdish official said the four Kurdish ministers would continue running their ministries and "did not pull out from the government". They did not mention a timeline for their boycott or terms for their return, but they called for an inclusive national government.
In their absence, the cabinet's first agenda item on Thursday was to instruct the Foreign Ministry - headed by Kurdish minister Hoshyar Zebari - to summon home diplomats reported to have demonstrated in London for Kurdish secession.
As the cabinet met, the head of Iraq's civil aviation authority, Nasser Bandar, said cargo flights to the Kurdish cities of Arbil and Sulaimaniya had been suspended.
He suggested the decision, which does not affect passenger flights, was linked to Maliki's accusation that Arbil had become a base for Islamist militants.
"There are sometimes certain procedures that should be taken to prevent things reaching the hands of the terrorists, so we have decided to stop cargoes going to Sulaimaniya or Arbil until further notice," Bandar told Reuters.
"TRUE HYSTERIA"
With the Islamist-led insurgency consuming Iraq's Sunni provinces, the United States and other countries have called for politicians in Baghdad to set up a more inclusive government following a parliamentary election in April.
Sunnis and Kurds are demanding that Maliki leave office, saying he has marginalised them during his eight years in power, but he shows no sign of agreeing to step aside.
Relations between Baghdad and the Kurds hit a low on Wednesday when Maliki accused them of allowing Arbil to be used as a centre for Islamic State and others, including former members of Saddam Hussein's now-banned Baath Party.
Responding to what he called Maliki's "void" accusations, Barzani's spokesman said on Thursday Maliki "has been afflicted by a true hysteria and lost his balance as he tries as hard as he can to justify his errors and failure and make others responsible for it".
The spokesman, Omaid Sabah, said Arbil "is a refuge now for all those fleeing his dictatorship" and called for Maliki to apologise to the Iraqi people for destroying the country. "The person who destroyed it cannot save it from crises," he added.
Many Sunni Muslims who fled the mostly Sunni northern city of Mosul during the militants' offensive have ended up in Iraqi Kurdistan, with leading Sunni political figures hated by Maliki now frequenting Arbil.
The militants have seized cash, weapons and other equipment during their sweep through the Sunni provinces. Among their haul, Iraq told the United Nations this week, is nearly 40 kg (88 pounds) of uranium compound seized in Mosul.
The U.N. atomic agency played down the significance of the material on Thursday, saying it was "low grade" and did not pose a significant security risk.
The government also said it had lost control of a former chemical weapons facility last month at Muthanna, north of Baghdad, where remnants of a former chemical weapons programme were kept. A U.S. Defense Department spokesman said the material appeared to be old and unlikely to be accessible or usable.
The army and Shi'ite militias have fought Sunni Islamists and other armed factions back and forth north of Baghdad for nearly a month, vowing to claw back ground they lost in just days last month.
Maliki's military spokesman, Lieutenant General Qassim Atta, said on Thursday scores of "terrorists" had been killed in the last 24 hours, including 46 in the western province of Anbar and 39 in Diyala, east of Baghdad.
But militants have also continued to make gains in some places, taking control of a village in Diyala two miles (3 km) east of the town of Muqdadiya, on a main road connecting it to other towns in the province, a police source said.
In Salahuddin province north of Baghdad, 35 Sunni farmers have been abducted in the last two days as they brought their produce for sale in the town of Dujail, a cousin of one of the captured men and two local officials said.
The relative said he saw gunmen take away his cousin as he sat in his car nearby.
Militia officials and fighters backing government forces in Salahuddin province and around Baghdad have told Reuters they had been detaining Sunnis on terrorism charges. Families of the missing say their relatives have disappeared without a trace. (Additional reporting by Ned Parker, Isra'a El Rubei'i and Maggie Fick in Baghdad; Writing by Dominic Evans; Editing by Gareth Jones)
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