Hundreds of Iraqi militiamen loyal to radical Shia cleric Moqtada Sadr have clashed with UK troops in Basra.
British troops exchanged fire with militiamen
Members of his militia attacked patrols and set up checkpoints across the city in an apparent attempt to take control.
The violence came a day after Mr Sadr's representative offered money for the capture or killing of coalition troops.
The British military in Basra said two Iraqis had been killed, and three coalition soldiers injured in the violence.
BBC correspondent David Willis says the fighting has now largely been brought under control.
Earlier militiamen had attempted to take over important buildings including the governor's office.
Reports said British troops in some 50 vehicles had surrounded Mr Sadr's headquarters in the city.
The escalation in fighting comes as US troops step up the pressure on Mr Sadr.
His militiamen have suffered dozens of casualties fighting coalition troops around the holy cities of Najaf and Karbala.
Newspaper pictures allegedly showing Iraqi prisoners being abused have provoked outrage and raised tensions in Iraq.
In Basra, Sunday Times reporter Stephen Grey said he was woken by the sound of about eight explosions.
He said there had been sporadic gunfire in the city and British troops had fired on a militia stronghold.
"This is a very organised attempt to try and take over the city this morning, albeit apparently unsuccessful," he said
Fighters set up checkpoints on Basra's streets
"The message in the mosque from Sadr's representative here was calling for people to come out on the streets today.
"They were combing the city trying to collect weapons from civilians."
From 0600 local time, he said, militiamen spread out across the city and set up checkpoints.
They attacked buildings including the main oil company headquarters and the governor's office - where they were beaten back by British troops and Iraqi police.
British troops were deeply concerned at the uprising and were trying to "de-escalate" the situation, he said.
Fighting also broke out in Amarah where reports said three Iraqi fighters were killed and British troops swept briefly into Mr Sadr's office.
The violence comes a day after Mr Sadr made a defiant speech in his home town of Kufa, near Najaf.
And his top aide in Basra, Sheikh Abdul-Sattar
al-Bahadli, told worshippers at Basra's al-Hawi mosque, he would give $350 to anyone who captures a British soldier and $150 for killing one.
He also said any Iraqi who took a female soldier could keep her as a slave or gift to himself.
It is not the first time his supporters have tried to take the governor's office.
In April they occupied it for one day and withdrew after a gun battle.