Human Rights Watch warned the Kurdistan regional government against meting out "collective punishment of entire Arab communities" for the Islamic State jihadist group's attacks.
"Cordoning off Arab residents and refusing to let them return home appears to go well beyond a reasonable security response," said Letta Tayler, senior terrorism and counterterrorism researcher at the New York-based rights group.
The HRW report said Kurdish forces have for months barred Arabs displaced by last year's IS offensive from returning to their homes in disputed areas.
Kurds, however, had been able to return to the same areas and even in some cases allowed to move into the homes of displaced Arabs, the group said.
When jihadists launched a devastating military blitz across Iraq's Sunni Arab heartland in June last year, Kurdish forces moved into the vacuum left by fleeing federal security forces.
The move expanded their territory by around 40 percent and gave them control over areas that Kurdish leaders have long sought to add to their three-province autonomous region in the north.
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Jihadists attacked several of those ethnically and religiously mixed areas in August, but Kurdish forces, backed by a Western air campaign, are reclaiming lost ground.
Human Rights watch said it had documented "apparently discriminatory acts" in districts of Arbil province within the autonomous region as well as of Nineveh province outside it.
It said some Kurdish officials defended the measures by arguing that Sunni Arab residents in the area had supported the jihadist advance and were still collaborating with IS.
The watchdog said some restrictions against Sunni Arabs had been eased in January, but stressed the Kurdish authorities needed to do more.
The Kurdistan Regional Government denied several of the allegations contained in the HRW report.
"No one has occupied any house of any Arab resident," government official Dindar Zebari said.
"There are people who were arrested, some in areas liberated from Daesh, because there was evidence they collaborated with them," he said, using an Arab acronym for the Islamic State.
He said that some residents had been prevented from returning to their homes in reconquered areas, but only so they would not be exposed to the risk of roadside bombs and booby traps IS had left behind.