Heavy fighting is reported in the city of Najaf, just hours after Iraq's government threatened to launch an offensive against Shi'ite rebels if they did not disband immediately.
Police say three mortar shells hit a police station, killing at least seven policemen and injuring more than 20 others.
Elsewhere in the city, gunfire and explosions could be heard, and fighters loyal to radical cleric Moqtada al-Sadr remained holed up in the Imam Ali Shrine, despite the cleric's promise they would leave.
Earlier, the Iraqi government said Moqtada al-Sadr must publicly announce that he will disband his militia and renounce violence, or Iraqi forces would attack within hours.
Meanwhile, in Baghdad, a mortar bomb exploded inside the Green Zone, which houses the Iraqi government and the U.S. embassy. There were no immediate reports of casualties.
Information for this repor is provided by AP, AFP and Reuters.