(Adds U.S. reaction, context, comments on oil conflict withKurds)
By Maher Chmaytelli
BAGHDAD, Aug 15 (Reuters) - Iraq's parliament approved theappointment of Jabar Ali al-Luaibi, former head of the mainstate oil firm, as oil minister in a cabinet overhaul on Mondaythat bolsters Prime Minister Haider al-Abadi's leadership.
Luaibi, who led the South Oil Company that produces most ofthe OPEC nation's crude, was one of six candidates Abadinominated to fill vacant ministerial jobs.
Parliament approved five of them, state television said,rejecting only Abadi's pick for trade minister.
The vote eases a political crisis that broke out in Februaryover anti-graft reforms sought by Abadi, and consolidates hisposition ahead of a battle planned for later this year torecapture Mosul, the largest city under Islamic State control.
U.S. envoy to the anti-Islamic State coalition Brett McGurkwelcomed the approval of the five ministers, saying in a tweetthat parliament's endorsement had overcome months ofdeadlock.
Demonstrations by supporters of powerful Shi'ite clericMoqtada al-Sadr in support of anti-graft reforms turned violentin May, after influential political groups blocked Abadi's plan.
The premier announced in February his intention to overhaulthe cabinet by appointing independent technocrats as ministersto loosen a political patronage system that breeds graft.
Five of the 22 government ministers resigned following hisannouncement, followed by a sixth, the interior minister, aftera massive bombing in central Baghdad in July. Abadi has yet topropose a new interior minister.
The whereabouts of a seventh, former trade minister MilasMohammed Abdul Kareem, are unknown after authoritiesinvestigating alleged corruption issued an arrest warrant forhim in October. Abdul Kareem has said the allegations were notbased on solid evidence.
The other ministers refused to budge, with the support ofinfluential political groups who thrive on the patronage systemthat allows them to amass wealth and influence.
DEFENCE MINISTER UNDER PRESSURE
Abadi could also suffer a setback should parliament withdrawconfidence from Khaled al-Obeidi, the defence minister he wantsto keep for the sake of maintaining momentum against IslamicState.
Parliament voted on Monday to reject explanations given byObeidi after they grilled him earlier this month on allegationsof corruption involving weapons contracts.
The vote doesn't mean the removal of Obeidi as another votewill be required in parliament to demand his resignation,according to Parliament Speaker Salim al-Jabouri.
During his Aug. 1 appearance before parliament, Obeidiresponded by accusing Jabouri and five other MPs of corruption. An Iraqi court last week cleared Jabouri of those charges,citing lack of evidence
Thirteen years after the U.S.-led invasion that toppledSaddam Hussein, Iraq ranks 161st out of 168 nations inTransparency International's Corruption Index.
It still suffers electricity and water cuts, as well asshortages of schools and hospitals, while existing facilitiesand infrastructure suffer widespread neglect and mismanagement.
Corruption continued to eat away at state resources evenafter they sharply declined when oil prices collapsed two yearsago, and despite the rising costs of the war on Islamic State.
Luaibi, the new oil minister, was on a previous list ofministerial candidates, blocked by parliament in April.
In his first comments after being sworn in, he said asolution to the Iraqi government's conflict over oil with theKurdish self-ruled region was possible.
"There are solutions to the existing problems between thefederal government and the Kurdistan Regional Government aboutthe oil file," he told Baghdad-based Sumaria TV.
The conflict centres on the Kurdish region's crude oilexports which Baghdad wants to bring under its control.
OPEC's second-largest producer after Saudi Arabia, Iraqproduces about 4.6 million barrels of crude oil per day, most ofit from the southern region overseen by South Oil Company.
About 500,000 barrels per day are exported from the Kurdishregion independently from Baghdad.
A solution will increase the nation's crude exports byallowing Baghdad to carry some of its oil through a Kurdishpipeline to a Turkish port on the Mediterranean. (Reporting by Maher Chmaytelli; editing by Dominic Evans)