US and Iraqi troops have killed 30 suspected Shia militants during heavy clashes in the southern Iraqi city of Diwaniya, the US military has said.
All routes into and out of the city have been sealed off
The fighting erupted as troops went in to arrest a militant responsible for earlier killings, they said.
It is thought the rebels were from cleric Moqtada Sadr's Mehdi Army, but its officials in Baghdad blamed "rogue elements" out of his control.
In Baghdad, police have found 51 bodies of people who were abducted and killed.
Meanwhile, a 36-hour curfew was lifted in the northern city of Kirkuk following a huge security operation.
Thousands of Iraqi army and police force personnel backed by US-led coalition troops combed Kirkuk for insurgents, while US troops lent helicopter support.
Police said about 180 people were detained and large quantities of arms and ammunition seized.
The BBC's Jim Muir in Baghdad says tensions have been rising in Kirkuk, which is home to Kurds, Arabs and Turkmens who claim ownership of the city and the oil-rich lands around it.
A curfew was imposed for most of the day in Diwaniya, a mainly Shia town, following the destruction of a US tank during the clashes. It has now been lifted.
The militants launched rocket-propelled grenades (RPG) against the troops who raided the house of Kifah al-Greiti, a Mehdi Army commander, the Associated Press news agency says, quoting an Iraqi army officer.
"An M1A2 Abrams tank was struck by multiple RPG rounds and was severely damaged," the US military statement said.
Iraqi and US troops then "engaged the enemy forces and killed approximately 30 of the terrorists", it said.
It said coalition and Iraqi forces had suffered no casualties.
The rebels said only three people had been injured.
A witness told Reuters news agency: "Nobody slept in Diwaniya last night. The fighting was very fierce."
Our Baghdad correspondent says tensions have been high in the area since fierce fighting in August between the Mehdi Army and Iraqi government forces and US troops.
The Mehdi army is said to have lost its cohesion
It is not yet clear whether these latest clashes involve the Mehdi army itself.
Recent reports have suggested that the militia is not cohesive and that more radical elements may have split off, says our correspondent.
Whatever the case, the people fighting the Americans in Diwaniya are clearly not Sunni militants, who form the bulk of the insurgency against the coalition forces and the Iraqi government, our correspondent says.