The clash occurred after a mortar attack on a US military base in the Jamarik area in the city near the border with Syria on Saturday.
Witnesses told Aljazeera several US soldiers had been injured in the attack. "US helicopters were seen transferring the injured to hospital," the witnesses added. Columns of smoke were seen rising from the base.
The city is totally paralysed, reported the correspondent. Only armed resistance fighters are seen in the streets, he added.
US apache helicopters were seen flying over the city.
A medical source told Aljazeera at least two children had been injured by random gunfire.
Meanwhile, a Sudanese national was reported killed on Saturday when two mortar rounds struck near two Baghdad hotels used by security guards employed by the US-led occupation and foreign journalists, a witness said.
"A round fell near a security checkpoint leading to the two hotels, killing a Sudanese guard of one of the nearby buildings," witness Muhammad Abd Al-Karim told AFP.
Another round exploded in the same sector, damaging a car and causing damage to nearby homes, an AFP correspondent on the scene reported.
Earlier on Saturday, a bomb apparently aimed at a US patrol had exploded in central Baghdad, injuring an Iraqi policeman.
Occupation convoys frequently
come under attack in Iraq
According to Aljazeera's correspondent, witnesses said an explosive device hit a convoy of Land Cruisers in which Iraqi policemen or intelligence officers were driving. They subsequently opened fire in the area.
Witnesses told Reuters the bomb had been placed under a pile of bricks across the street from a pharmacy.
The US military said it was checking on the cause of the explosion which occurred at about 8am (04:00 GMT) in Baghdad's morning rush hour.
On Friday, US occupation forces raided a mosque in the Iraqi capital, Baghdad, arresting two people.
According to Aljazeera's correspondent, the 14th of Ramadan mosque near al-Firdaus square in Baghdad, was surrounded by US military vehicles.
The identities of those arrested are not yet known.