US and Iraqi forces are preparing for a final assault against Shia Muslim fighters in the holy city of Najaf, the US military has said.
Moqtada Sadr has urged his supporters to fight on
American forces have been battling insurgents loyal to radical cleric Moqtada Sadr for the past week.
In response to the US announcement, Sadr loyalists threatened to blow up oil pipelines in the south if US forces launch an assault on Najaf.
Hundreds have been reported killed or injured since the fighting began.
The US military said it was holding joint exercises with the Iraqi national guardsmen to prepare for a final assault on militia in Najaf.
"Iraqi and US forces are making final preparations as we get ready to finish this fight that the Moqtada militia started," said Col Anthony Haslam, commanding officer of the 11th Marine Expeditionary Unit in Najaf.
It is not clear when the threatened assault might take place.
On Monday, officials shut down oil fields in the south of the country after threats of sabotage from Sadr loyalists.
Mr Sadr has called on his followers to keep fighting even if he himself is captured or killed.
"I thank the dear fighters all over Iraq for what they have done to set back injustice," he said as fighting flared up in other cities such as Amara, where at least 10 Iraqis died in clashes with UK forces.
Fresh clashes were also reported on Wednesday night in the Sadr City area of Baghdad.
The US military said on Monday that Najaf's Governor, Adnan al-Zorfi, had given its troops permission to raid the Imam Ali mausoleum in Najaf. The US says the insurgents are using the shrine as a refuge, but an attack could anger Shia Muslims.
It is one of the holiest sites in Shia Islam, marking the spot where the Prophet Muhammad's son-in-law, Ali, is buried.
One of Iraq's deputy presidents, Ibrahim Jaafari, has called for the US-led forces to withdraw and allow Iraqi security forces to take over. He also called on Mr Sadr's Mehdi Army militants to pull back.
Confirmed casualty figures are unavailable for Najaf but clashes in Baghdad, Amara, Kut and other towns left at least 30 dead and 219 wounded on Tuesday alone, the Iraqi health ministry said.
At least six Iraqis were killed and 10 injured when a bomb exploded at a market near Baquba, north of Baghdad.
In the flashpoint city of Falluja, west of Baghdad, at least two Iraqis were killed in what appeared to be a US air strike.
Elsewhere, eight people were detained and weapons and ammunition seized in a raid in the central Iraqi city of Karbala, according to a statement from the multinational troops.