Turkish warplanes attacked an Iraqi village this morning, and later confirmed 34 Kurdish rebels had been killed in secret attacks over the past three days.
The Iraqi official, speaking on condition of anonymity, said a Kurdish village in mountainous country 25km northeast of the northern town of Dahuk, had been heavily bombed at midday. He gave no details of damage.
Turkish security sources said earlier that Turkish warplanes had flown a series of sorties 20km into Iraq in the past three days, while some 300 troops had advanced about 10km into northern Iraq.
A Turkish military official said further "hot pursuit raids" could be expected.
Turkey, which has Nato's second biggest army, has deployed as many as 100,000 troops, backed by tanks, heavy artillery, F-16 fighter jets and helicopter gunships, along the mountainous border in preparation for a possible large-scale strike.
Turkey's government is under pressure at home to strike at separatist guerrillas hiding in the northern Iraqi mountains who have stepped up attacks on Turkish soldiers this year.
Baghdad has pledged to act against the rebels. A Turkish official on Wednesday quoted Iraqi President Jalal Talabani as saying Iraq might hand over PKK militants to Turkey, but Talabani denied this.
"We have said many times that the PKK leadership does not exist in Kurdish cities but are living with thousands of their fighters in the Qandil mountains, so it is not possible for us to arrest and hand them over to Turkey," he said in a statement.
The Turkish official described a planned visit by an Iraqi delegation to Ankara on Thursday as a "final chance" for diplomacy. At Turkey's request, the team will be headed by Iraqi Defence Minister General Abdel Qader Jassim. It will also include Iraqi National Security Minister Shirwan al Waeli.
Washington and Baghdad fear a major Turkish incursion into northern Iraq could destabilise the whole region. But Turkish Prime Minister Tayyip Erdogan's government is under heavy public pressure to take tough action, especially since Sunday's deaths.
"If I look at the Turkish government as it has acted up until now I think the Turkish government is showing restraint - remarkable restraint under present circumstances," Nato Secretary-General Jaap de Hoop Scheffer told reporters at a meeting of the alliance's defence ministers.
US Secretary of State Condoleezza Rice told the House Foreign Affairs Committee on Wednesday she had told Erdogan on Sunday that she took the situation "extremely seriously".
"Iraq should not be a place where terrorism can hurt Turkey," she said. "We have a list of things that we believe, if they are undertaken, will help to deal with this situation," she added, citing Iraq's pledge to close PKK offices there.
Ankara is sceptical about Baghdad's ability to crack down on the PKK in northern Iraq, a mainly Kurdish region where the central government has little clout. The publication of photographs said to show eight Turkish soldiers captured by the PKK has added to pressure on Ankara to act.
US troops are largely absent from northern Iraq.
The PKK's Jaderji said the eight soldiers were in good health but no decision had been made on whether to release them.
Ankara blames the PKK for the deaths of more than 30,000 people since the group launched its armed campaign for an ethnic homeland in southeast Turkey in 1984.
Turkey's National Security Council, comprising political leaders and army top brass, met and said it had recommended that Turkey take economic measures against groups which aid the PKK.
Northern Iraq depends heavily on Turkey for power, water and food supplies. Iraqi Kurdish leader Masoud Barzani has infuriated Turkey by refusing to act against the PKK. He has said his peshmerga fighters will resist any Turkish incursion.