Aljazeera's correspondent in the city reported the clashes began on Thursday morning and were still underway hours later.
He said the storming of Shia leader Muqtada al-Sadr's offices in the city by Italian troops provoked the unrest.
"No details were reported about casualities on both sides," he added.
In another incident, four policemen were wounded when a police station was attacked in Taji district, 25km north of Baghdad, on Thursday morning.
Aljazeera reported that the wounded were taken to the Kadhimiyah hospital in Baghdad for treatment.
Meanwhile, the toll in Wednesday's car bomb blast in the Iraqi town of Baquba has climbed to 70 dead and 90 injured.
The attack was the deadliest since the interim government was installed last month.
The majority of those injured are in a serious condition, reported Aljazeera's correspondent Abd al-Adhim Muhammad.
Al-Sadr (R) has clashed with
occupation forces frequently
A car packed with explosives detonated in a marketplace in Baquba, 65km north of Baghdad, near a police station.
Many among those killed were passengers in a minibus which happened to be nearby.
There were also casualties among policemen and new police recruits who had queued up nearby.