American troops have mistakenly killed at least eight Iraqi police officers at a checkpoint in Falluja, west of Baghdad, witnesses say.
US forces trained the volunteers to help maintain order
The men who died were members of the local US-trained protection force, who were chasing a car carrying suspected thieves when the Americans opened fire on them, survivors said.
The incident took place near a hospital and a Jordanian guard there was also killed.
It appears to be the second friendly-fire case in the past two days in the flashpoint town, about 50 kilometres (30 miles) west of Baghdad.
And in the nearby town of Ramadi two American soldiers were killed and seven wounded in a pre-dawn raid on Friday.
The BBC's Barbara Plett in Baghdad says it appears there were three police vehicles - one an unmarked pick-up with a rear-mounted machine gun - chasing a fourth vehicle containing gunmen.
There are conflicting reports about what happened as the cars reached the US checkpoint. The US military has said only that one of its soldiers was injured in an attack involving small arms fire near a Jordanian Red Crescent hospital.
But survivors say that despite repeatedly shouting to the Americans "We are police!" the US soldiers kept on firing for 45 minutes.
It is thought the Americans may have opened fire on the police vehicles after being surprised by the armed pick-up truck.
Our correspondent says the latest incident will almost certainly set back US efforts to calm this volatile region, where there is fierce resentment of the occupation and anger at the number of locals killed by US forces.
On Wednesday, US troops in Falluja shot dead at least one Iraqi policeman and wounded another when their convoy was hit by a bomb.
The hospital was badly damaged by gunfire
In the latest incident, Iraqi witnesses said police from Falluja were chasing a white Mercedes without licence plates when it passed through the checkpoint at night.
US troops manning the checkpoint reportedly opened fire on both vehicles after they failed to stop and witnesses said three gunmen travelling in the Mercedes were killed.
The Jordanian Red Crescent hospital near the checkpoint was riddled with bullet holes after the shooting, and correspondents found thousands of spent rounds at the scene.
Angry crowds gathered outside the police headquarters in Falluja in protest against the deaths, the Associated Press news agency reported.
Falluja, a stronghold of supporters of ousted Iraqi dictator Saddam Hussein, has been the scene of frequent clashes involving US troops.
The ground at the scene was littered with spent rounds
The local protection force was set up by the US military with volunteers to help Iraqi police impose law and order.
Correspondents say anti-US resistance has been strong in the town since American troops killed 16 demonstrators there in April.
In other parts of Iraq the situation is very different.
In the Shia-dominated province of Najaf, south of Baghdad, no US soldier has been killed or wounded in combat since April.
But in places with a largely Sunni Muslim population in and around Baghdad, on some days there are as many as 20 separate attacks on US forces.