Hospital and police sources said six people were killed on Saturday after Iraqi policemen opened fire on a group of stone-throwing protesters.
Another Iraqi was shot and killed by a British soldier.
The Iraqi police opened fire after protesters, who were demanding jobs, began throwing stones at the headquarters of the provincial government in the city. Another seven people were injured.
The US military meanwhile claimed occupation forces shot dead an Iraqi after he hurled grenades during the demonstration by the unemployed.
But locals insisted no one had attacked the US soldiers and that the troops had opened fire first on the protesters demanding the local governor find them jobs.
"At 10.45 am, one Iraqi terrorist was killed during violent demonstrations in Amara," a US military spokesman said.
Locals complained bitterly about the highhandedness of the occupation troops and the Iraqi police.
"We came here to get a job, but instead of giving us a chance they opened fire on us," a protester said.
Rampant unemployment is a scourge in Iraq and most Iraqis are growing impatient with the US-led occupation.