Militants of radical Iraqi Shia cleric Moqtada Sadr should leave Najaf, another leading Shia cleric has urged.
America has deployed heavy armour around Najaf
Sheikh Sadreddin Kubanji told worshippers at Friday prayers in the holy city that "the Najafis will be responsible for protecting Najaf".
Mr Sadr meanwhile defied US troops' threats to arrest him, as he left Najaf and delivered a strong anti-US message.
Some 12 of Mr Sadr's rebels were killed in Friday's clash with US troops around Najaf, a US military spokesman said.
At least eight Iraqis were killed in separate clashes between US forces and Mr Sadr's Mehdi Army militia in a separate fighting in the nearby city of Karbala.
"Listen to the advice of the learned ones, " Mr Kubanji told worshippers at Najaf's Imam Ali Mausoleum, one of the most revered shrines in Shia Islam.
"You are our beloved youth and we care about you, but go back to your home where you came from and fight the occupation and the Baathists there," the cleric said.
It was the strongest criticism by a Shia cleric of Mr Sadr and his militants who seized Najaf last month, analysts say.
In another attack by Iraqi insurgents on Friday, gunmen shot dead two journalists from Poland's state-run television in an ambush south of Baghdad.
Meanwhile, four Iraqi policemen were killed by a roadside bomb in the northern town of Mosul, police and medics said.
Mr Sadr left his base in Najaf surrounded by a large number of heavily armed gunmen, including at least one carrying an anti-aircraft gun, the Associated Press news agency reported.
US troops stationed around Najaf did not intervene.
The radical cleric arrived at a mosque in the adjacent Kufa to hear his supporters chant "Yes, yes, to freedom!", "Yes, yes to independence".
They heard Mr Sadr strongly condemn the US over the scandal of abuse of Iraqi detainees at the notorious Abu Ghraib prison in the Iraqi capital.
"What sort of freedom and democracy can we expect from you [Americans] when you take such joy in torturing Iraqi
prisoners?" said Mr Sadr.
He demanded that the US guards who have been charged with abuse be handed over to Iraqi courts for trial.
Referring to Mr Bush's apology on Thursday, the firebrand cleric said: "Your statements are not enough. They [the guards] must be punished in kind."