The Iraqi government has closed national carrier Iraqi Airways over a dispute dating back to Saddam Hussein’s invasion of Kuwait in 1990.

Kuwait Airways claims that the Iraqi flag carrier owes it $1.2bn for aircraft and plane parts seized during the first Gulf War. Last month, lawyers acting for Kuwaiti authorities tried to have an Iraqi Airlines plane confiscated while at London’s Gatwick Airport.

The airline’s chief executive also had his passport confiscated and was held in London, but has since returned to Iraq.

Iraq’s transport ministry told reporters the state-owned airline would now be closed having earlier declared it bankrupt.

All flights have been cancelled with immediate effect, and refunds are already being offered to affected customers.

Services to go include weekly flights between Baghdad and London, and flights from Baghdad to a number of other destinations in the Middle East, including Cairo, Tehran and Damascus.

The closure comes just year after the first direct service between Baghdad and London resumed following 20 years in the wilderness due to the war.

The ministry blamed “harassment” from Kuwait for the airline’s failure.

Lawyers acting for Kuwaiti authorities are unable to seize planes because they are chartered from other airlines, rather than owned by Iraqi Airways itself.

Chris Gooding, a lawyer representing Kuwait Airways, told the BBC World Service that the winding up of Iraqi Airways would not stop his clients from pursuing compensation.

He pointed to a statement made by the Iraq transport minister last week which said: “This action will not protect a government company because when a government company is declared bankrupt its assets are transferred to the ministry of finance and therefore the ministry will be prosecuted.”

The transport minister warned that winding down the company could take as long as three years.