Imam Jalal al-Din al-Saghir, during the Friday sermon, urged the US-appointed Iraqi Governing Council to permanently close down the Qatar-based satellite channel's Baghdad bureau.
"Aljazeera lies and it creates divisions between people," he said in a fiery speech at the Aatafiya mosque in central Baghdad. Al-Saghir is seen as close to Iraq's highest Shia spiritual leader Sayyid Ali al-Sistani.
Aljazeera's interim Baghdad bureau chief Majid Khadir denied the accusations.
"He is completely wrong. What we are doing is conveying exactly what each party says about Iraqi problems, especially elections," said Khadir.
Al-Saghir slammed television presenter Faisal al-Qasim for trying to create sectarian divisions and supporting Saddam Hussein.
Al-Qasim's programme "An Opposing Direction" has caused an uproar after broadcasting photographs showing some members of the Governing Council with Israel's Mossad.
Picking up Aljazeera's microphone, the Imam criticised the channel's policy
Report on assassination
"Qatar is an Israeli collaborator and its emir is a former Baathist," he claimed. "The lies of Aljazeera have tried to lead to al-Sistani's assassination," he alleged.
He was referring to the news organisations reports last week that the Shia cleric had escaped an assassination attempt.
Khadir pointed out that the channel quoted wire agencies and al-Ghadir television, which broadcasts from the Shia-stronghold city of Najaf.
"We were not the only TV station which broadcast the news. So why does Mr Jalal al-Din al-Saghir accuse only Aljazeera?," asked Khadir.
"We were not the only TV station which broadcast the news"
interim Baghdad bureau chief, Aljazeera
Iraqi Governing Council member Muwaffaq al-Rabayai, who met al-Sistani that day, also confirmed to Aljazeera the Shia leader had been the target of an assassination attempt.
"As a news organisation we have to broadcast this," he said.
There have been past attempts to close down Aljazeera's Baghdad bureau. However, Khadir said occupation authorities in Iraq had said there was no legal basis for such a move.
Al-Saghir claimed the channel was playing down rallies taking place in different parts of Iraq in support of early elections, saying it inaccurately reported the number of protesters.