NAJAF, Aug 6: US marines said on Friday they had killed more than 300 Iraqi fighters loyal to Moqtada Al Sadr in fierce clashes that pose a stern test for an interim government struggling to stamp its authority over the country.

A spokesman for Al Sadr denied that many fighters had been killed in Najaf in the past two days. He said 36 militiamen had died in several Iraqi cities from clashes that have fuelled fears of a new uprising in southern Iraq. By late on Friday, Najaf was quiet, residents said.

The fresh fighting marks a major challenge for US-backed Prime Minister Iyad Allawi and appears to have destroyed a two-month-old ceasefire between US forces and Sadr's Mehdi militia.

"The number of enemy casualties is 300 KIA (killed in action)," Lieut-Col Gary Johnston, operations officer for the 11th Marine Expeditionary Unit, said at a military base near Najaf.

Lieut-Col Johnston said two marines had been killed and 12 wounded. Much of the fighting took place around the mausoleums and small caves of Najaf's ancient cemetery. In Najaf's streets, market stalls burned as ordinary Iraqis cowered in their homes. Thick black smoke rose over the city.

Despite the marine onslaught, hundreds of Mehdi militia roamed the city near Najaf's shrines. There were unconfirmed reports of gunfire damage to the dome of the Hazrat Ali's shrine.

US military officials said there were indications that foreign fighters had joined the militia. The US-appointed governor of Najaf put the militia death toll at 400, with over 1,000 captured. He said he had information 80 Iranians were fighting alongside Sadr's militia, whom he ordered to leave the city in 24 hours.

Sheikh Raed Al Qathimi, a spokesman for Sadr, rebuffed the American version of the death toll. "I categorically deny these American lies," he said. Colonel Anthony Haslam, the marine base commander and chief of operations in Najaf, estimated the number of Mehdi fighters at more than 2,000.

The US military added it was not pursuing Sadr. British and Italian troops also fought the Mehdi militia across southern Iraq - in Basra, Amara and Nassiriya - while fighting raged in Sadr City and Shoula, two predominantly Shia districts of Baghdad.

The Health Ministry said fighting in Sadr City alone had killed 20 Iraqis and wounded 114 since early on Thursday, while in Nassiriya six were dead. The Italian military said it had reached a ceasefire agreement with Mehdi militants in Nassiriya, using the governor of Dhi Qar Sabri province, Hamid al Rumayad, as an intermediary.

Ettore Sarli, spokesman for the Italians in Nassiriya, said al Rumayad asked Italian troops to move behind their lines to allow the Sadr militants to leave the city. Yet Sadr appeared keen to stop the latest fighting.

Via another spokesman in Baghdad, he called for a resumption of a truce struck in June. "We have no objections to entering negotiations to solve this crisis," Mahmoud Al Sudani told reporters. "As I have said in the name of Sayed Sadr, we want a resumption of the truce." -Reuters