Iraq's most senior Shia cleric has issued a religious ruling, or fatwa, opposing US plans to set up a council of Iraqis to draft a new constitution.
There is great unease among Iraqi Shias about US plans
Ayatollah Ali Sistani called for general elections in the country to choose representatives of the Iraqi people instead.
The US administrator in Iraq, Paul Bremer, plans to set up a new political council as the next step towards a future Iraqi government, but BBC regional analyst Sadeq Saba says the Ayatollah's ruling is a serious blow to the American plans.
Meanwhile US Defence Secretary Donald Rumsfeld said on Monday that remnants of ousted Iraqi leader Saddam Hussein's regime had come together to form a "terrorist network" in Iraq, but he dismissed suggestions that coalition forces there are stuck in a quagmire.
"We're in a global war on terrorism and there are people that don't agree with that. If you want to call that a quagmire, do it. I don't," Mr Rumsfeld said.
Despite the end of the war British and US troops are still being attacked
"We are dealing with those remnants in a forceful fashion... Those battles will go on for some time," Mr Rumsfeld said.
British and US troops in Iraq have faced continuing attacks and a rising death toll as they try to bring order to the country following the collapse of Saddam Hussein's government.
Mr Rumsfeld compared the situation in post-war Iraq to that in the US just after it declared independence from Britain and before it established a new Constitution and government.
"The problem is going to be dealt with over time, as the Iraqis assume more and more responsibility for their own country," Mr Rumsfeld said.
But Ayatollah Sistani is Iraq's highest religious authority and his fatwas are followed by many Shia Muslims, who are in the majority in Iraq.
The American forces in Iraq have repeatedly praised him for his moderate views as he believes in the separation of religion and state and he rarely makes political statements.
There is no guarantee that such a convention will draft a constitution upholding the Iraqi people's interests
But in his latest edict, Ayatollah Sistani says it is totally unacceptable for the occupation authorities in Iraq to appoint members of a political council to draft a new constitution.
"The (occupation) authorities are not entitled to name the members of the assembly charged with drafting the constitution," he said.
"There is no guarantee that such a convention will draft a constitution upholding the Iraqi people's interests and expressing their national identity, founded on Islam and lofty social values."
Significantly, several Iraqi groups have already opposed his call for a fatwa.
Ayatollah Sistani suggested that the Iraqi people should elect their own representatives to such a council and then the people should finally approve it in a referendum.
Mr Bremer told Iraqi political groups at the beginning of June that a future Iraqi interim administration, to be set up by mid-July, would be led by a 25-30-strong political council that would name "key advisors" to government ministries.
The interim body would work in parallel with a separate, much larger convention that would draw up a new Iraqi constitution.