US commanders say several hundred Iraqis have been killed in ferocious fighting near Najaf.
In one of the biggest engagements of the war so far, Iraqi troops reportedly sustained the heavy losses on Tuesday after ambushing the US 7th Cavalry between Najaf and Karbala some 160km (100 miles) south of Baghdad.
The BBC's Michael Voss at Central Command headquarters in Qatar says a separate Iraqi advance has also been halted to the east of the Euphrates river, and artillery strikes called in.
A US defence official said Iraqi ground forces attacked the US 7th Cavalry with rocket-propelled grenades.
There are conflicting reports about the number of Iraqi dead - ranging from 300 to 650. There are no reports of US casualties and the figures cannot be independently confirmed.
The French news agency AFP, quoting Major John Altman, said US troops backed by tanks killed 650 Iraqis.
Major Altman said the Iraqi dead included Fedayeen militiamen and fighters from the ruling Ba'ath party.
He told AFP that the Iraqis were attempting to reinforce Najaf with thousands of troops from the Republican Guard from Karbala 60km (35 miles) to the north.
An unnamed Pentagon official said elements of the 7th Cavalry engaged the Iraqis after coming under fire from rocket-propelled grenades that damaged some equipment.
AFP further reports that some 250 Iraqis were killed when the First Brigade secured a bridge north of Najaf and another 200 were killed near a storage depot west of the city.
Major Altman said 300 Iraqis were taken prisoner and 100 had fled.
Reuters correspondent Luke Baker, who is with US forces near Najaf, reports that US tanks became stranded during the action when Iraqis blew up a bridge they had crossed.
And a CNN correspondent with the US 7th Cavalry quoted an officer in the field as saying the Iraqis had knocked out two Abrams tanks.
But the US Army Times' Sean Nayler, quoted in the US newsaper USA Today, said the regiment had actually lost three Abrams tanks, a Bradley fighting vehicle and several trucks
Iraq's Information Minister Mohammed Saeed al-Sahhaf said on Wednesday that Fedayeen militia had shot down a
helicopter to the south of Najaf. But he did not
give the model or specify if it was a US aircraft.