NAJAF, Aug 19: Fierce fighting raged in Najaf on Thursday after Shia leader Moqtada Sadr spurned a final call from the prime minister to disarm his militia or face an attack on his sanctuary.

In Baghdad, an official claimed US troops had killed 50 militants in clashes near Sadr's stronghold of Sadr City. US aircraft and tanks pounded the area around Najaf's Imam Ali Mosque, where Moqtada al Sadr and his Mehdi militia have holed up. Thick smoke poured into the sky, dozens of explosions shook the old city and automatic rifle crackled through the air.

Fighting eased an hour later, indicating the interim government's threatened offensive was not yet under way. "This is the final call for them to disarm, vacate the holy shrine, engage in political work and consider the interests of the homeland," interim Prime Minister Iyad Allawi said at a Baghdad news conference.

Away from the shrine area, three mortar bombs hit a Najaf police station, killing seven police and wounding 21 others. Police said Mehdi militiamen fired the salvo. Moqtada Sadr reverted to his trademark defiance after two days in which he had appeared to be willing to disarm his militia and end his two-week-old stand in Iraq's holiest shrine.

Asked about government demands, Sheikh Ahmed al Sheibani, a senior Sadr aide and Mehdi Army commander, told reporters earlier in Najaf: "It is very clear that we reject them."

The uprising has badly dented Mr Allawi's authority, killed hundreds and rattled world oil markets. Oil prices hit a new record of 48 dollars for a barrel of US light crude.

Mr Allawi said while he welcomed the sometimes conciliatory comments by Moqtada Sadr and his aides, he wanted something concrete in writing. He refused to be drawn on whether Sadr had been given a deadline, although his senior officials said it was hours.

"We are hoping that Moqtada al Sadr is going to comply with the demands, otherwise I can assure you there will be military action against him," Minister of State Kassim Daoud said.

One US marine was killed in action in Najaf on Wednesday, the US military said. More than 700 US troops have been killed in action since the start of last year's invasion. Any storming of the mosque could provoke outrage among Shias, especially if any of the 2,000 US marines encircling Najaf are involved.

Sadr said on Wednesday his militia forces would disarm and leave the Najaf mosque if a truce was agreed with US marines, who have pounded his militia for two weeks in the southern city with warplanes, helicopter gunships and tanks.

The radical leader made the apparent concession after the government threatened to teach the Mehdi militia "a lesson they will never forget". His subsequent posturing aroused scepticism among US officials that he would back down.

"I don't think we can trust Al Sadr. I think we have to see action, not just words," National Security Adviser Condoleezza Rice told Fox News. Most Najaf residents too were sceptical fighting would end.

"What peace? I don't believe it. Look at this hell," said Talib Moussa, a 35-year-old labourer. Sadr has more than once vowed to fight to the death in Najaf and has proved a wily strategist in past confrontations.

Despite the plump, bearded leader's youth - he is about 30 - the latest uprising has transformed him into the most recognizable face of resistance to the US presence in Iraq. -Reuters