A top aide of radical Shia cleric Moqtada Sadr has said the Mehdi Army was not involved in the kidnapping of five Britons in Baghdad on Tuesday.
Witnesses said police units sealed off the street outside the ministry
Iraqi foreign minister Hoshyar Zebari had said he believed the Shia militia group were behind the abductions.
But Sheikh Abdel al-Sattar al-Bahadli told the BBC the Sadrist movement and the Mehdi Army were innocent and wanted to peacefully build a new Iraq.
The five men were seized at the finance ministry in the Sadr City suburb.
Mr al-Sattar al-Bahadli told the BBC Arabic Service that clear and direct instructions from Moqtada Sadr stated "we want to build a new Iraq" through dialogue, the language of peace and by accepting other opinions.
'Dangers and challenges'
Earlier, US and Iraqi troops carried out raids and sealed off parts of the city, close to where the kidnapping took place.
The US military said a number of militants had been arrested but would not confirm whether the raids were linked to the missing Britons.
BBC correspondent Jim Muir said the raids in a Shia area were the "clearest physical indication so far" that suspicions were falling on the Shia militia.
Others too pointed to Shia militia being behind the abductions.
The Anglican vicar of Baghdad, Canon Andrew White, said the kidnapping could be linked to the killing of radical Shia cleric Abu Qadir, also known as Wissam Waili, in Basra on 25 May.
Arab news channels reported the British Army were behind his death, but British sources blamed Iraqi forces.
Canon White said: "The worrying thing is this is obviously not a case for ransom demand; economic hostage-taking is fairly easy to deal with."
Foreign Secretary Margaret Beckett said the UK government was working closely with Iraqi authorities and doing all it could to secure the men's release.
She said their families were being offered support at this "distressing time".
Tony Blair, who is on a visit to Sierra Leone, said: "We know the dangers and challenges there but we shouldn't let those that are prepared to use kidnapping and terror succeed."
The five men - a computer expert and four bodyguards - were taken from the finance ministry building in Palestine Street in Baghdad.
The kidnappers in police uniforms walked past ministry guards and staged the capture without firing a shot, senior Iraqi officials said.
A police source told the BBC dozens of police vehicles were used in the operation.
Mr Zebari said the kidnappers probably had connections with local police in the area.
BBC security correspondent Frank Gardner said the Iraqi government now had a few questions to answer after such an "incredibly brazen raid" in broad daylight.
He said there were suspicions of low or middle-level connivance in the police, known to be heavily infiltrated by Shia militias.
British embassy officials in Iraq are following up the case and the Iraqi government has set up a special operations room.
Cobra, the UK government's emergency committee, met for a second time on Wednesday.
'Filling their boots'
The four kidnapped security guards were working for Canadian-owned security firm GardaWorld.
The company is one of the biggest suppliers of private security in Iraq, and is mainly staffed by Britons.
Iraqi police are heavily infiltrated by militias
The kidnapped computer expert was working for BearingPoint, a US management consultancy which has worked on development projects in Iraq since 2003.
Private contractors are known to be unpopular with Iraqis.
Anas Al-Tikriti, an Iraq expert involved in the negotiations to secure the release of Briton Norman Kember, said mercenaries, private contractors and private firms were considered to be in Iraq "filling their boots".
"As much as the Iraqis despise and loathe the occupiers, they loathe and despise those mercenaries a hundred times more," he said.
About 200 foreigners of many different nationalities have been kidnapped in Iraq over the past four years, though the number has fallen dramatically since a few years ago.
This is thought to be the first time Westerners have been abducted from a government facility.
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