The reported ultimatum comes as thousands of Iraqi troops and allied militia are locked in an armed standoff with Kurdish Peshmerga fighters near ethnically divided but historically Kurdish-majority Kirkuk.
Tensions have soared between the erstwhile allies in the war against IS since a Kurdish vote for independence last month, drawing urgent appeals for calm from the US-led coalition supporting the campaign.
"The deadline set for the Peshmerga to return to their pre-June 6, 2014, positions will expire during the night," the Kurdish official told AFP, asking not to be identified.
The official's comments came as Iraqi President Fuad Masum, who is himself a Kurd, was holding urgent talks with Kurdish leaders in the city of Sulaimaniyah in the south of the autonomous Kurdish region.
No statements have emerged from the meetings.
Iraqi troops took over formerly Kurdish-held positions in the south of Kirkuk province yesterday, including in the mainly Shiite-Turkmen town of Taza Khurmatu.
In June 2014, IS fighters swept through vast areas north and west of Baghdad, prompting many Iraqi army units to disintegrate and Kurdish forces to step in.
The Kurds currently control the city of Kirkuk and three major oil fields in the province, which account for a significant share of the regional government's oil revenues.
US Defence Secretary Jim Mattis said yesterday that Washington was working to reduce tensions between Iraqi federal and Kurdish forces, urging them to remain focused on the war against jihadists.
"We are trying to tone everything down and to figure out how we go forward without losing sight of the enemy, and at the same time recognising that we have got to find a way to move forward," he told reporters.
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