The US troops were killed when a blast struck their convoy on the edge of the Shia militia stronghold of Sadr City, the US military said on Friday.
"There were five killed and five wounded," said Lieutenant
Colonel James Hutton, spokesman for the 1st Cavalry Division.
Residents said resistance fighters had fired a rocket-propelled grenade at an armoured vehicle, forcing it to come to a halt before a roadside bomb exploded.
Hours earlier, two Iraqis died in clashes between militiamen loyal to al-Sadr and US occupation forces. One civilian and a fighter belonging to the Mahdi Army militia were killed, medical sources told Aljazeera's correspondent in Baghdad.
Al-Sadr's followers fired mortar rounds and rocket-propelled grenades at a police station housing occupation soldiers early on Friday, reported the US military.
US forces evacuate wounded
comrades from near Sadr City
However, al-Sadr officials say clashes started after troops tried to storm homes and arrest militiamen.
Residents of Sadr City, which has a population of some two million people, said the fighting had started around 8:00pm (16:00 GMT) on Thursday.
Helicopters and jet fighters flew over the area during the exchanges. The fighting set a bakery in front of the police station on fire, but no other damage was reported.
According to Aljazeera correspondent Atwar Bahjat, US occupation troops and al-Mahdi Army fighters have withdrawn from Najaf and neighbouring Kufa and Iraqi police and local Shia observers have deployed in their place.
The withdrawal is aimed at ending a two-month armed standoff between US-led occupation forces and al-Sadr's Mahdi Army in the two cities, which contain some of the most sacred shrines in Shia Islam.