Barham Salih, in comments to reporters in Washington, said disbanding militias would be a serious challenge and conceded that in some areas militias have taken on the role of governing agencies, providing security and services.

"The militia situation is a very, very serious challenge for Iraqis and for the Iraqi government because it touches upon the heart of the accountability of the Iraqi government and governing institutions," Salih said.

"The prime minister has been adamant that this cannot be tolerated and that the state must be the sole practicer or holder of weapons as such, and we have issued a number of plans in that regard," he said.

But, Salih said, political leaders must choose to put down their weapons or the present situation will continue. Salih singled out Sadr, whose Mehdi Army militia acts as the military wing of a political party while continuing to confront U.S. and Iraqi government forces.

"There are discussions with Moqtada al-Sadr and other political leaders in the country that they all have to make a choice -- either they are part of the political process and renounce arms and integrate into the country's political system and governing institutions, or the present situation will not be acceptable."

PRIVATE ARMIES

Shi'ite Prime Minister Nuri al-Maliki's coalition government has promised to disband sectarian and ethnic militias and build an army to defend the state. Still, private armies have flourished as security problems plague Baghdad and other areas of the country.

Salih, who met with U.S. Defense Secretary Donald Rumsfeld on Thursday, did not provide details of the militia law that will be proposed in October. He said it would be enforced by the Iraqi army with U.S. and coalition support.

The Iraqi army, trained by U.S. forces, is due to be at its planned strength of 130,000 within a few months. While some areas have begun to transition to Iraqi security control, many local forces remain unable to operate without a measure of American support.

Salih declined to comment on U.S. troop levels, saying those decisions must be made by military commanders.

Unabated violence has frustrated U.S. efforts to reduce its troops in Iraq and raised concerns about civil war. But Salih said progress was being made elsewhere.

He said he expected the parliament by year-end to pass a law on Iraq's oil revenues that would consolidate the funds at the federal government and then redistribute them "equitably among all components of Iraqi society."

"Despite the images of carnage on television that focuses on the car bombs, day in, day out, there is a lot of work going on," he said.

"I don't want to tell you that things are rosy in Iraq. They are not. We have difficulties. We have grave challenges," Salih said. "The important thing is that the mainstream Iraqi leadership are aware of the challenges that are before us and are aware of the imperative of rising to that challenge."