The five men and the child were killed in US gunfire at a street market in the town of Tikrit, according to the director of the main hospital in Saddam Hussein's hometown.
However, a US military spokesman disputed the account of locals, saying only two arms dealers had been killed and another two wounded.
Dr Salah al-Dulaimi said US soldiers opened fire at five arms sellers who were test-firing Kalashnikov assault rifles for customers at 8:30 am (0430 GMT), killing them.
A child who was in the marketplace of the town, 175 km north of Baghdad, was also fatally shot, and a woman was wounded, he said.
But Lieutenant Colonel Bill MacDonald, of the 4th Infantry Division (ID), gave a different version of events.
"US soldiers opened fire at five arms sellers who were test-firing Kalashnikov assault rifles for customers , killing them."
Dr Salah al-Dulaimi
"Soldiers of 4th ID sent out an observation patrol to monitor a location where suspected former regime loyalists were trafficking illegal arms. At 7:30 am (0330 GMT), a team observed four men illegally trafficking weapons. The team engaged the four men, two were wounded, two were killed," MacDonald said.
Reuters cameraman Miran Jelenek saw the body of one man, draped in a sheet, next to a pool of blood. A red car, which troops said had been carrying Kalashnikov rifles and explosives, had windows shattered by gunfire and bloodstains on the seats.
US soldier killed
One US soldier died after suffering a gunshot wound while on guard duty in Baghdad, the US military said on Friday, but it declined to say whether he was killed in a hostile attack.
The soldier from the 82nd Airborne Division had been on guard duty in the Mansur district of the capital on Thursday evening.
"The soldier was transported to a nearby medical facility for treatment and subsequently died from wounds received," a US military statement said.
In al-Amariya near Falluja, three US soldiers were wounded in a roadside explosion, witnesses said.
The powerful explosion shook the road at 10:00 am (0600 GMT), flipping over one of the US Humvee vehicles, said farmer Sami Abed al-Issawi.
US troops immediately arrived at the scene, while a helicopter evacuated the three wounded soldiers, he said.
Al-Amariya is just south of Falluja, and is considered a centre of strong anti-occupation sentiments.
In Tikrit, Saddam Hussein's onetime chef surrendered to US forces on Friday, a relative said.
US troops raided the home of Major Qais Rajab in Tikrit overnight and searched the place, but the former chef was not there at the time, Rajab's brother-in-law, Walid al-Tikriti, said.
Rajab returned to his home on Friday morning and decided to turn himself in, said Tikriti, himself a former lieutenant in Saddam Hussein's elite Republican Guard.
The death toll in the blast outside Baghdad’s Jordanian embassy has gone up to 17, an official at the hospital where the bodies were taken said.
The official, Khaled Fajr, said on Friday that two wounded Iraqi policeman had died overnight, and a further four bodies which had been removed from the scene had been found.