The move represents a welcome delay for a country that relies heavily on its neighbor for energy supplies.
Iraq buys gas and electricity from Iran to supply about a third of its power sector, worn down by years of conflict and poor maintenance and unable to meet the needs of the country's 40 million population.
The US blacklisted Iran's energy industry in late 2018 as it ramped up sanctions, but granted Baghdad a series of temporary waivers, hoping Iraq would wean itself off Iranian energy by partnering with US firms.
The latest extension extends into the start of US President-elect Joe Biden's mandate, as the administration of President Donald Trump departs the White House on January 20.
The new exemption, which is longer than previous extensions, was granted after "long discussions", the official told AFP on condition of anonymity.
The exemption, however, does not solve all of Baghdad's energy problems.
Tehran has demanded nearly $6 billion in unpaid gas bills from Baghdad, recently reducing its supply to Iraq over the arrears.
In a statement on December 28, the National Iranian Gas Company (NIGC) said the Iraqi Ministry of Electricity owes more than $5 billion in gas bills to the company, of which $3 billion remains blocked and inaccessible in Trade Bank of Iraq, and more than $2 billion is overdue debt, according to Press TV.
Iran’s money from exports of gas and electricity has piled up in bank accounts in Iraq, because US sanctions are preventing Tehran from repatriating it.
According to the NIGC statement, Iraq also owes more than $1 billion to the National Iranian Gas Company for contractual offenses under the agreement.
Natural gas from Iran generates as much as 45% of Iraq’s electricity. Iran transmits another 1,200 megawatts directly.