Witnesses said occupying troops destroyed al-Sadr's office in Karbala early on Saturday, where his fighters had been set up, while helicopters blasted positions of the leader's Mahdi Army with cannon fire.
US snipers perched on the roofs of buildings surrounding the shrines of Imam al-Husayn and Imam al-Abbas, an area that is among the most sacred ground for Shia Muslims and which has witnessed fierce firefights in recent days.
Al-Sadr's men have seized police stations and government buildings in southern cities during the fighting. Karbala police denied reports they had lost control of a station on the fringes of the city, along with its store of weapons. It could not immediately be verified whether the station had been seized.
The shrine area, normally packed with Shia Muslim pilgrims from Iran and other countries, was deserted and stores at its edges were closed, some having had their windows smashed and their merchandise looted in the wake of the fighting.
On Friday, at least 10 supporters of al-Sadr, were reportedly killed in clashes with US occupation forces in Najaf.
The fighting erupted as US forces intensified their action against al-Sadr, sending tanks into Najaf's vast cemetery to blast fighters' positions on sacred ground in the holy city for the first time.
Several tanks moved into Najaf
At least four dead and 26 wounded - mostly civilians caught in the crossfire - had been taken to Najaf's hospital by Friday afternoon, officials there said. Many more were believed to have been killed in the cemetery, but their bodies had yet to be collected, they added.
Explosions and gunfire rocked Najaf for about six hours while fighting raged around the main police station, less than a kilometre from some of the most revered Shia shrines.
Sixteen killed elsewhere
Meanwhile, British troops killed up to 16 Iraqi fighters in a firefight after being ambushed in southern Iraq, the Ministry of Defence said on Saturday.
The attack on Friday saw a British patrol call in reinforcements after being ambushed south of Amara by Iraqi fighters armed with rocket-propelled grenades and small arms.
"Up to 16 armed militia combatants were killed and one Iraqi was taken prisoner," a Ministry of Defence spokesman told Reuters. "Two British soldiers were injured and were evacuated by helicopter."
The spokesman, who refused to identify the regiment involved in the firefight, added the injuries to the two British soldiers were not life threatening.
Last Monday Defence Secretary Geoff Hoon had warned British troops would face more violence in southern Iraq after last weekend's attacks that left 11 British soldiers injured.
Most of the 7500 British soldiers in Iraq are based in the southern city of Basra.