NAJAF, Aug 9: Shia leader Moqtada Sadr on Monday defied demands from Iraq's interim government that his militia pull out of Najaf and threats from his fighters forced a halt to oil output in the south.

Despite a brief lull to evacuate casualties, there was no sign that fighting would ease after days of fierce clashes with US marines, who claim to have killed 360 of Sadr's fighters.

The radical leader's men hit the oil industry for the first time, raising fears about a sector already plagued by sabotage. "Pumping from the southern oilfields to storage tanks at Basra was stopped today after threats made by Al Sadr," said an Iraqi oil official. "It will remain stopped until the threat is over."

The official said militiamen from Moqtada Sadr's Mehdi Army had threatened to sabotage production by the state Southern Oil Company, based in Basra. He said storage at the Gulf Basra terminal was sufficient to keep exports running for two days. Iraq has been exporting 1.9 million barrels a day.

While the most serious clashes were in Najaf, where violence shut down most of the city, 16 people were killed in the past 24 hours elsewhere. A suicide car bomb exploded outside the house of an official in the village of Balad Ruz, north of Baghdad, killing seven policemen.

The deputy governor for Diala province was among 17 wounded. At least four Iraqis were killed when a bus was caught in a blast west of Baghdad. And in the capital guerillas fired mortar rounds at the oil ministry and other government compounds on Monday after a night of intermittent mortar and rocket fire.

Fresh clashes also broke out in a Shia-dominant district of Baghdad named after Sadr's father on Monday. The government imposed a curfew from 4pm until 8am until further notice in the sprawling Sadr City slum, home to two million people, but many residents ignored the order.

Battles in several cities tested the wills of the firebrand Sadr and the interim government of Prime Minister Iyad Allawi, who has vowed to impose stability and lead an economic recovery which would depend heavily on oil exports.

MAJOR TEST: The fresh uprising in Najaf poses the most serious test for Mr Allawi since he took over from US-led occupiers on June 28. Heavily armed marines, backed by aircraft, tightened their noose around the holy city in heavy battles, but a senior US military official denied occupation forces were hunting the young Sadr.

Explosions and gunfire echoed from the heart of Najaf. Smoke rose from near an ancient cemetery, scene of hand-to-hand combat in recent days, as US aircraft flew overhead.

The US military official claimed marines had killed at least 360 loyalists from the Mehdi Army since the uprising erupted on Thursday. Sadr's men contest that figure.

Mr Allawi visited the shell-scarred city on Sunday and demanded Sadr's militia back down. Moqtada Sadr, a hero to the country's Shia youth, rejected the order to quit his hometown.

"In the presence of occupation, there are no politics," he said. "You can't twin democracy and occupation, you can't twin freedom and occupation." Moqtada Sadr thundered defiance during a news conference at Najaf's holiest shrine, the Imam Ali mosque.

"The Mehdi Army and I will keep resisting. I will stay in holy Najaf and will never leave," Sadr said. "I will stay here until my last drop of blood." Fighting in other cities has killed dozens in recent days.

STREET BATTLES: In the southern city of Basra, British troops fought street battles with Mehdi Army militiamen, who set fire to two British military Land Rovers.-Reuters