According to a British military spokeswoman, the clashes occurred when a British foot patrol came under attack near the Basra office of cleric Muqtada al-Sadr late on Friday evening.
The militia, which is loyal to al-Sadr, used automatic rifles, rocket-propelled grenades and mortars during the clashes, Aljazeera's Basra correspondent said.
He added that al-Sadr's office was a mere 100m from the headquarters of the British army.
There were no immediate reports of casualties in the latest fighting, but two militiamen were reported killed earlier in the morning.
The latest incident marks the second day of fighting in Basra. On Thursday, three Mahdi Army militiamen were killed in clashes with British forces in the city.
Elsewhere in Iraq, members of the Mahdi Army militia seized four police stations in the southern city of Amara, Aljazeera reported.
Al-Sadr's supporters were seen driving police vehicles and roaming the city's streets.
Mahdi Army militia have mobilised
in different parts of Iraq
In the city of Samarra, al-Sadr's supporters attacked a US convoy of 10 military vehicles north of the city forcing the convoy to retreat.
"US forces returned fire by bombing the fighters, using helicopters. A city official said two people were killed and another 16 wounded", an Aljazeera correspondent in the area said.
Aljazeera's correspondent in Baghdad reported that three government ministries came under mortar attack as Mahdi Army militiamen clashed with US forces in the Faydhiya district, northeast of the city.
The oil, culture and youth and sports ministries were hit, he said.