Iraqi forces are trying to drive out Shiite militiamen in Basra. The militias took over when British troops left the southern city.
Many civilians are believed to be among the dead; at least 22 killed so far and nearly 60 injured.
Radical Shiite cleric Muqtada al-Sadr is threatening to stage "civil disobedience" if U.S. and Iraqi forces continue to attack his followers, who are currently observing a seven-month cease-fire called by Sadr.
A top aide read a statement from Sadr. In it, he calls upon all Iraqis to stage a strike. And if the Iraqi government doesn't respect their demands, he says the next step will be civil disobedience in Baghdad and all other provinces. He said the third step, will not be disclosed at this time.
Witnesses describe hearing gunfire and seeing thick, dark smoke rising from parts of the city. The violence comes one day after the grim milestone of 4,000 American casualties in the Iraq war was counted.