BAGHDAD, April 10 (Reuters) - Iraqi government contractors will be receiving bonds in lieu of cash as a solution to payment delays caused by the collapse in the nation's oil income, the central bank said on Sunday.

The bonds can be traded in the local market or cashed at banks for a discount, the central bank said in an emailed statement. It didn't indicate a maturity or interest rate.

The bonds can also be used as loan guarantees at face value, it added, without saying when the securities will be issued.

"The financial crisis cell headed by the prime minister agreed to the central bank's proposal to issue government bonds to pay the dues of contractors and suppliers ... hereby contributing to solving the problem of due payments," it said.

The government is struggling to meet payments as a costly war on Islamic State insurgents in the north and west drains a budget that is already strained by lower oil prices.

The Central Bank announced last month its first bond sale to the public since 2003 in an attempt to plug the budget deficit.

(Reporting by Saif Hameed.; Writing by Maher Chmaytelli; Editing by Ros Russell)