Iraqi police has imposed a curfew to prevent an outbreak of violence in the southern Shi'ite holy city of Najaf, after a senior aide to anti-American cleric Moqtada al-Sadr was shot dead on Friday.

Police set up road blocks and drove through the city with loudspeakers ordering shops closed and people off the streets after Riyadh al-Nuri, a top Sadr aide whose sister is married to the cleric's brother, was gunned down.

Sadr blamed the United States and Iraqi government for the slaying. 'This is the hand of the occupier and his successor reaching out traitorously and agressively against our precious martyr,' the cleric said in a statement. 'It is my vow that I will not forget this precious blood.'

Dozens of angry followers gathered at Shi'ite Islam's main cemetery in the holy city to bury Riyadh. In a speech to mourners, Sadr aide Abdul-Hadi Al-Mohammedawi quoted the cleric as saying followers should remain 'calm and not to drift into strife'.

A struggle for power among Shi'ites in the south has involved frequent assassinations over recent years. But the death of someone so close to Sadr risks inflaming those tensions at a time when his militia has been at the centre of an upsurge in violence in Baghdad and throughout the south.

US and Iraqi forces have clashed with Sadr's Mehdi Army since late March, when Prime Minister Nuri Al Maliki launched a crackdown on the militia in the southern city of Basra.

In the early morning hours of Friday Iraqi troops were fired upon when they tried to enter the northern Basra district of Hayaniya, a Mehdi Army stronghold, police said.

A US aircraft retaliated with an air strike that killed six people and wounded one, said British Major Tom Holloway, a spokesman for US and British forces in southern Iraq.

US soldiers operating a drone plane over Sadr City, an eastern Baghdad Shi'ite slum, also fired a Hellfire missile late on Thursday at a group of men carrying rocket-propelled grenade launchers, killing six, the US military said.

Sadr City has been the focus of intense street battles over the past week that have killed close to 100 people. The slum is under a vehicle blockade, due to end Saturday, that has led to food and medicine shortages.

US forces say militants in Sadr City have been responsible for rocket and mortar strikes across the capital, including at the heavily fortified Green Zone diplomatic and government compound in the city centre.

A missile ripped a hole in the second floor of the landmark Palestine Hotel across the Tigris River from the Green Zone on Friday, killing three civilians outside the hotel, police said.

The hotel houses some international media but is mostly vacant. The Associated Press, which has TV staff in the hotel, said none of its people were hurt.

Maliki has threatened to exclude Sadr's movement from participating in provincial elections later this year unless he disbands his militia and turns over weapons.

But in a Mehdi Army statement read over loudspeakers in Sadr City mosques on Thursday night, the militia was defiant.

'They want us to disarm, but they are seeking to take away the dignity and honour of the Iraqi people,' it said. 'They want to turn Iraq into another Palestine, but we say to the tyrants that we will not abandon our weapons.'

Street fighting that has been raging in Sadr City since Sunday has eased somewhat in recent days and fewer mortars have been landing in the Green Zone.

But the upsurge in violence since March has coloured an election-year debate in the United States about how soon to withdraw US troops.

Democrats, including presidential contenders Barack Obama and Hillary Clinton, accuse the Bush administration of not having an exit strategy for Iraq, five years after the US-led invasion to oust Saddam Hussein.

On Thursday, President George W. Bush said he would suspend further reduct