Many people have been killed and wounded in the renewed fighting between al-Sadr's al-Mahdi Army and US occupation troops, medical officials said on Wednesday.
Falah al-Muhana, director of Najaf's main hospital, said 29 casualties had been brought in from clashes in the heart of the old city. The number included people killed and wounded, but he had no precise figures.
Meanwhile, the Iraqi interim Defence Minister Hazim al-Shaalan said on Wednesday a "decisive battle" for Najaf was imminent and called on al-Sadr to surrender "within hours".
The surge in violence coincided with the departure of the eight-member peace delegation, made up of participants in the ongoing Iraq National Conference, Aljazeera's correspondent reported.
Al-Sadr, whose fighters are gathered inside Najaf's Imam Ali shrine, decided not to see the delegation because of security concerns, spokesman Shaikh Ahmad al-Shaibani said on Wednesday.
The al-Sadr aide blamed the failure to meet on "continued aggression by the Americans" who had made the road unsafe for the Shia leader to travel.
Husayn al-Sadr was able to meet
only the aides of Muqtada al-Sadr
Al-Shaibani also said there was no new scheduled meeting between his leader and the delegates.
The delegation, led by al-Sadr relative Husayn al-Sadr, was received by two deputies, who later described the encounter as "positive".
"What we heard [from the delegation] contains positive indications. We are willing to discuss them," said al-Shaibani.
There were chaotic scenes when the delegation arrived inside the shrine amid the sound of explosions and gunshots from fighting raging elsewhere in the city.
More than 1000 men in the shrine shouted, beat their chests, raised their fists and chanted "Long live Muqtada".
Oil pipeline threat
US troops supported by Iraqi security forces have sealed off Najaf's historic Old City, with al-Sadr and his al-Mahdi Army fighters inside the shrine.
Applying pressure on the Iraqi authorities, a group claiming links to al-Mahdi Army has vowed to attack the main southern oil pipeline if occupation troops do not leave the city.
The group, in an internet statement dated 16 August, also claimed responsibility for setting an oil well on fire in south Iraq a few days earlier.
"We set ablaze an oil well in Amara. This is a simple warning to the government of [Prime Minister Iyad] Allawi and to occupation forces, that we will bomb the main south oil export line if they do not leave Najaf within 48 hours and end the siege," said the statement signed by The Secret Action Group of The Imam Mahdi Army.