US and Iraqi forces killed at least 13 fighters in clashes and air strikes overnight in Baghdad's Sadr City, but eased a blockade on Saturday that had trapped residents in the battle zone slum for two weeks.

Gunfire was still audible and some roads remained closed, but cars were allowed in and out of some entrances to the slum, home to 2 million poor Shi'ites and power base of anti-American cleric Moqtada Al-Sadr and his Mehdi Army militia.

Residents described the night's clashes as among the worst fighting there since Iraqi forces launched an offensive into the area a week ago. A US military statement said at least 13 gunmen were killed in one overnight battle.

A US convoy was struck by at least 10 roadside bombs while moving in to support Iraqi Army soldiers setting up a checkpoint in the west of Sadr City, spokesman Major Mark Cheadle said.

US forces fired at least one Hellfire missile from drone aircraft and two rounds from the main battle gun of an M1 tank against fighters who targeted them with roadside bombs, rifles and rocket-propelled grenades, the military statement added.

The Sadr City fighting, as well as fierce battles in the southern city of Basra between security forces and the Mehdi Army late last month, has thrust the Iraq war back onto the centre stage of the US presidential election campaign.

Police said 17 people were wounded in the overnight fighting in Sadr City. The slum's two hospitals said they received at least 33 wounded.

Despite the fighting, the Iraqi government's Baghdad security spokesman, Major-General Qassim Moussawi, said the situation was stable and the overnight clashes would not interfere with long awaited plans to lift the blockade.

'If more such clashes take place, we will deal with them by raiding the targets in an intelligent way,' he said, adding that some roads were still shut to clear away bombs.

Cheadle said the decision to lift the blockade was 'an indicator of the confidence in the battle-tested Iraqi security forces in that area'.

The blockade imposed by US and Iraqi troops has led to skyrocketing food prices and trapped residents in the densely populated slum under nightly bombardment. Residents said they were relieved to get out but wary about the future.-Reuters