The UK defence secretary and Iraqi prime minister have denied the unrest in Basra has strained relations between the two countries.
Iraqis again took to the streets in protest on Wednesday
John Reid and Ibrahim Jaafari met in London to discuss tensions surrounding the arrest and rescue of two soldiers in the southern Iraqi city on Monday.
Iraq's interior minister has disputed British army accounts that police handed the men over to Shia militants.
In London, Mr Jaafari said the incident was still being investigated.
"We hope to realise the truth of the matter on the ground," he said.
The Army has said it had to rescue two soldiers from a house in Basra where they were taken by militants after the police ignored an order from the interior ministry to release them.
Iraq's national security adviser Muwafaq al-Rubaie has said Iraqi security forces had been penetrated by insurgents but he did not know to what extent.
But Interior Minister Baqir Solagh Jabr told BBC News the men never left police custody or the prison building in Basra and were not handed to militants.
He said the British army acted on "rumour" when it stormed the prison looking for them.
In London on Wednesday, Mr Jaafari and Mr Reid both denied any breakdown in relations after Monday's violence.
"Such things are expected to happen," the Iraqi prime minister said. "It will not affect the relationship between Iraq and Britain."
"There has not been a fundamental breakdown in trust," the defence secretary added. "There has been an incident that will be investigated."
The Iraqi government has launched an inquiry into the arrest of the soldiers, both thought to be members of the SAS elite special forces.
There were anti-British protests on the streets of Basra on Wednesday, the BBC's Paul Wood reported.
He said the demonstrations were organised by local police.
One officer called the two UK soldiers "British terrorists" and claimed they should still be under arrest.
Paul Wood said demonstrators believed Iranian TV reports that the two men were detained after they opened fire on Shia pilgrims on Monday.
He said they were probably on a covert mission to get the intelligence needed to stop further attacks on British troops.
Their weapons, explosives and communications gear are standard kit for British special forces.
Meanwhile, the soldiers who were pictured on Monday caught up in the unrest have spoken about it for the first time.
"My back was on fire, down the back of my arms and part of my face," Sergeant George Long, of the Staffordshire Regiment, told the BBC.
"It was basic panic, I needed to get out of (the armoured vehicle's) turret and get the flames put out.
"I checked my gunner was being dealt with, then got back into the turret, stayed there to carry on with the public disorder."
Separately, an Iraqi journalist with national newspaper As Safeer has been shot dead in Mosul.
The death of the paper's Mosul bureau chief, Firas Maadidi, comes two days after the killing of his female colleague, reporter Hind Ismaeel.
On Monday, Iraqi journalist Fakher Haidar al-Tamimi was shot dead in the southern city of Basra.
Mr Tamimi worked for several foreign news agencies, including US daily The New York Times.