Militiamen of al-Sadr's al-Mahdi Army were controlling access to the southern city on Saturday. Militiamen ordered occupation forces to stay out of the city until the commemoration of Arbain ends on Sunday.
Iraqi police, whom the US-led forces had previously entrusted with keeping order during the Arbain holy day, were nowhere to be seen.
Earlier, al-Mahdi Army said it would suspend fighting against occupation forces in Karbala.
Shaikh Hamza al-Taei, leader of al-Mahdi Army in Karbala, told Aljazeera television on Friday that fierce battles for what he said is the "liberation of the Holy Karbala city" would be temporarily suspended on Saturday until Sunday.
According to Shia practice, Arbain is the fortieth day after Imam al-Husayn, the grandson of the prophet Muhammad, died in battles in Karbala 1343 years ago.
Arbain comes 40 days after the religious day of Ashura when bombers detonated a series of explosives in Baghdad and Karbala, killing 171 civilians.
Karbala is known as the city of
Late on Friday, al-Taei said fighting would be suspended only on condition "occupation forces do not interfere in the holy city's affairs … do not enter the city and do not target our checkpoints, set up to protect the honourable visitors and citizens".
Al-Sadr's supporters have vowed to continue their uprising until their demands are met, including a pullout by occupation troops from all populated areas.
Arbain coincides with an uprising by al-Sadr followers since last Sunday which has swept across Iraq, leaving hundreds dead and injured.
It is the first time since the US-led occupation that a Shia faction has taken up arms. The Shia leader's followers ended "peaceful resistance" when Spanish forces in Najaf opened fire on al-Sadr supporters protesting against the US detention of al-Sadr aide Mustafa al-Yacubi. Twenty people died in thhe firing.
In what may be a sign that al-Sadr is winning sympathy from more Shia as his militia challenges the occupation, at least 20,000 worshippers- about twice the usual number- gathered for weekly prayers at an al-Sadr run mosque.
"Our movement is stronger today than it was a week ago," said Ibrahim al-Janabi, a senior al-Sadr aide. "But most important of all is that God is on our side," he said on Friday after prayers in al-Sadr City, a Baghdad suburb and stronghold for al-Sadr’s supporters.
As a sign of al-Sadr's newfound influence in Najaf, his representative delivered Friday prayers in the city's Imam Ali Shrine, the holiest site for Shia.