Journalists have been ordered out of the holy city of Najaf where fighters loyal to Shia cleric Moqtada Sadr have clashed with US and Iraqi forces.
An onslaught on Najaf is imminent, say observers
Observers say the move indicates a major assault on the city is imminent.
"From now on this city is closed," a senior police officer told correspondents, who face arrest if they decide to stay on.
Security issues dominated a national conference in Baghdad which will choose an assembly ahead of elections.
Militants in shrine
The gathering at a venue in the city's high-security green zone continued despite a mortar attack nearby which caused several casualties.
Gunfire and mortar blasts could be heard in Najaf on Sunday following the government's pledge to resume military operations after talks on a ceasefire failed.
"One demonstrator was killed and two others were wounded by
American fire from the cemetery," a surgeon told AFP news agency.
Fighters loyal to Mr Sadr are still holed up in the Imam Ali shrine - one of the holiest sites for Shia Muslims.
"A major assault by forces will be launched quickly to bring the
Najaf fight to an end," said interior ministry spokesman Sabah
"This matter has to be brought to conclusion as fast as possible
and we want to bring the situation to normalcy soon."
A correspondent for Iranian television, Mohammad Kazem, was held at gunpoint by police while broadcasting live from a rooftop.
The Paris-based media organisation, Reporters Without Borders has criticised the decision to ask journalists to leave the city.
The watchdog said the move was "a serious blow to press freedom" and
expressed concern about "persistent episodes of censorship in Iraq".
Religious and political leaders who met on Sunday are due to elect a 100-member interim council ahead of free elections next year.
But Mr Sadr is boycotting the talks.
Interim Prime Minister Iyad Allawi said in his opening speech that the conference was a "first step... to open up horizons of dialogue".
The interim council due to emerge will be tasked with monitoring the interim government and helping pave the way towards the first post-war elections in January.
Mortar attacks occur almost daily in Baghdad
The fighting on Sunday appears to be the first since a truce began on Friday after a week of fierce clashes between Shia gunmen loyal to Mr Sadr and the US-led forces.
Negotiations between Mr Sadr and the Iraqi government broke down on Saturday.
Mr Sadr said democracy could not prevail in Iraq while US forces were besieging Najaf, a city holy to all Muslims and the Shia in particular, and he rejected the conference in Baghdad.
"They call it a national conference, although it is not," he said on the Arabic satellite TV network al-Jazeera.
He is believed to be staying at the Imam Ali shrine where his Mehdi Army fighters are prominent among the armed groups which guard the shrine and religious schools.
The BBC's Matthew Price in Baghdad says that every day the stand-off in the city continues, Moqtada Sadr and his men gain more support across the country.