The radical Iraqi Shia cleric Moqtada Sadr has been wounded in fighting in the holy city of Najaf, his aides say.
Sadr has urged his supporters to keep up the fight
Mr Sadr is reported to have suffered three separate injuries, but an aide has said his condition is stable.
Officials from the interior and defence ministries have denied that the cleric was hurt in fighting overnight.
Meanwhile, in the southern city of Basra, a UK journalist was abducted from his hotel by militants demanding that the Americans withdraw from Najaf.
The kidnappers have threatened to kill James Brandon, a freelance reporter for the Sunday Telegraph, unless their demands are met within the next 24 hours.
In Najaf, a truce has been agreed so that some of the casualties can be brought out of the city.
Eight wounded Iraqis were taken out of the shrine after ambulances were allowed to enter the area.
"We are allowed to engage the enemy only in self defence and long enough to break contact," Maj Bob Pizzateli, from the 1st Cavalry Division, was quoted by AP news agency as saying. "That was a blanket order for everybody."
Some 2,000 US marines and 1,800 Iraqi troops are involved in the latest operation in Najaf, which was launched on Thursday after seven days of fighting with tank, infantry and helicopter assaults.
They are now maintaining a cordon around the shrine, the cemetery and the old city while government officials hold talks with aides of the cleric in the hope of putting an end to the standoff.
Iraq's interior minister said the cleric was in negotiations with the interim government to leave the shrine, where he is believed to be holed up with his followers.
Falah al-Naqib told the Reuters news agency the cleric would "not be touched" if he left the shrine peacefully.
"We will go after the criminal elements which have penetrated the Sadr movement, but not Moqtada," he said.
Mr Naqib also denied that the cleric had been hurt during the overnight shelling of the area.
Reports of Mr Sadr's injuries came from his aides, who had tears in their eyes as they spoke of their leader's wounds.
Unconfirmed reports by Arab TV stations suggested he had been hit in the chest, leg and arm. But one of his spokesmen described Mr Sadr's injuries as not life threatening and said his condition as stable.
The cleric has renewed calls for his supporters to keep up the fight even if he dies a martyr.
"He is our leader and we would be lost without him as we were lost when his father died," Faris al-Husseini, 27, told AFP news agency, referring to Mohammed Sadek Sadr, who was killed in 1999 for speaking out against the regime of Saddam Hussein.
Mr Sadr is thought to have around 1,000 loyal fighters, who are gradually being pushed back towards the shrine.
Iraqi and US officials have said that, in the event of an assault on the central area, only Iraqi forces will enter the shrine to avoid inflaming Shia sentiment.
There have been protests against the US presence in Najaf in a number of cities around the country.
The assault has also been condemned by Iran and the Arab League.
The mausoleum is one of the most important sites in Shia Islam and any serious damage would anger its followers across the world.
In a statement read out to a news conference by a senior official, Mr Allawi said: "Our brave troops have never targeted the sacred holy shrine, but the militia have made the site a target by occupying it."
"This government calls upon all the armed groups to drop their weapons and rejoin society," he added. "We can upon all the armed men to evacuate the holy shrine and not to violate its holiness."
It is unclear how many people have been killed and wounded after more than a week of fighting in the city.
The US military says it has killed hundreds of militiamen - but Mr Sadr's forces say their losses are much lower.