US ambassador to Iraq Ryan Crocker is set to meet Iranian ambassador Hassan Kazemi in the highest-level official bilateral talks between the two sides since the 1979 Islamic revolution.

The United States and Iran broke off diplomatic relations in 1980 after radical students stormed the US embassy in Tehran and held its diplomats hostage for 444 days.

State Department spokesman Tom Casey said the talks would be held "in Baghdad, at an Iraqi government facility," giving no further details for security reasons.

An Iraqi representative will join them at the start of the talks, which will then continue behind closed doors. There will be no official statement, but Crocker said there could be a press conference at the US embassy after the event.

The meeting follows a brief encounter between US Secretary of State Condoleezza Rice and her Iranian counterpart, Manouchehr Mottaki, on May 4 at a conference on Iraq held at the Egyptian resort of Sharm El-Sheikh, Egypt.

"Bad relations between the two countries does not serve Iraq, and Iraq has paid the price for the tension between the two countries," said Ali al-Dabbagh, spokesman for Iraqi Prime Minister Nuri al-Maliki.

"We don't want Iraq to be an arena for fighting between the two sides," Dabbagh told reporters Wednesday.

Washington accuses Tehran of fomenting violence by arming and training radical Shia militias. Tehran in turn says that peace will not be restored in Iraq until US forces leave.

Washington also accuses Iran of seeking nuclear weapons, wants Tehran to freeze its uranium enrichment operations, and has not ruled out military strikes to thwart Iran's nuclear drive. Iran says its atomic drive is peaceful and that it has every right to the full fuel cycle.

Iran's nuclear programme however is not on the agenda for Monday's talks.

"We have decided to do this meeting as part of the neighbours process," said Casey. "This is the appropriate channel for that kind of issue. It's not a forum for discussion about other events."