The fighting in the city of Kut broke out after factions of the Mahdi Army militia attacked checkpoints around the city amid a crackdown by Iraqi troops.
A joint U.S.-Iraqi operation also targeted a Shiite militia stronghold in the volatile city of Diwaniyah, 80 miles south of Baghdad, and at least 12 suspected fighters were detained, local police said. The U.S. military had no immediate comment.
The fighting underscored rising tensions between rival militia factions battling for control of the oil-rich southern Shiite heartland with an eye toward the eventual withdrawal of U.S.-led forces.
The Mahdi Army militia is nominally loyal to the radical cleric Muqtada al-Sadr, who renewed a six-month truce in February, but its fighters have been involved in clashes. The U.S. has not accused al-Sadr in the violence, blaming instead rogue militiamen who ignore his cease-fire order.
But U.S. and Iraqi officials have been cracking down on al-Sadr's followers, angering many in the movement who complain the security forces have been infiltrated by rival factions.
Iraqi reinforcements were sent to Kut four days ago to wrest control of a militia stronghold controlled by Mahdi Army fighters who had become increasingly brazen in recent weeks in their attacks on security forces, police said.
In other developments:
Meanwhile, the U.S. military released 13 detainees who were welcomed home at a ceremony in the former Sunni insurgent stronghold of Azamiyah in northern Baghdad. It was the latest in a series of releases meant as a goodwill gesture to promote reconciliation with minority Sunnis who have turned against al Qaeda in Iraq.
One of those freed, Muntasir Abdul-Mahdi, said he had been held at Camp Bucca for a year after being arrested by U.S. troops.
"They said that they would make inquiries, but I was there for one year," he told AP Television News. "I am innocent. They released us because we are innocent."
American officials have touted the sharp decline in violence over the past year as a sign the Bush administration is beginning to show success in a conflict widely unpopular with the American public.
According to the U.S. military, attacks have fallen about 60 percent since early last year, when President Bush ordered in about 30,000 American reinforcements to curb a wave of sectarian killings that had Iraq teetering on civil war.
But U.S. commanders caution that Iraq remains far from secure and say the security gains are fragile because of political disputes among the country's rival Shiite, Sunni and Kurdish communities.