US marines have battled Shia militiamen in the holy city of Najaf for a third day as the death toll mounts in the worst bout of fighting in Iraq in four months.
The US military says it has killed some 300 enemy fighters in the fighting, while statements on Friday said two US marines were killed in action in Najaf and one soldier died of an attack in Baghdad.
The fresh fighting marks a major challenge for US-backed Prime Minister Mr Iyad Allawi and has destroyed a two-month-old ceasefire between US forces and the Mehdi Army, a militia loyal to radical Shia Muslim cleric Mr Moqtada al-Sadr.
Mr Allawi was set to announce later on Saturday a series of measures aimed at containing the insurgency raging since the fall of Saddam Hussein in April 2003.
The handover of power to Allawi's interim administration in June has failed to ease the wave of bombings, kidnappings and attacks against Iraqi and US forces. The latest upsurge of violence also throws into doubt a conference set for August 15th to choose a 100-member National Council to act as parliament.
Residents in Najaf said the combatants exchanged machine gun fire, shells and mortars into the early hours. There was a lull for several hours but then fierce fighting erupted again around midday, residents said.
Hundreds of Mehdi militiamen roamed the streets around the city's holy shrines, ignoring an ultimatum by the US-appointed governor to quit Najaf by the evening.
Shops and businesses remained closed as residents stayed indoors. Some of the few who ventured out were clearing rubble of badly damaged shops and buildings.
The US marines said today they had killed 300 fighters of Sadr's Mehdi Army militia in two days of fighting in Najaf. But a militia spokesman said only 36 militiamen had died in several Iraqi cities from clashes that have fuelled fears of a new rebellion of radical Shias.
A Health Ministry official said 35 people had been killed and 180 wounded in fighting in mainly Shia districts of Baghdad since Thursday. He said eight more were killed and 18 wounded in the southern city of Nassiriya and one person died and two were wounded in the nearby town of Amara.
But the official could not give casualty figures from Najaf.