Witnesses said American AC-130 aircraft were used in the attack on the suburb, home to more than two million people.
"I heard explosions. AC-130 planes were firing," said a Sadr City resident, who added that he saw at least 12 tanks moving into the suburb.
An Iraqi journalist told Aljazeera that attempts by a US convoy to enter the city were repelled by fighters.Helicopters could be heard in Baghdad heading in the direction of Sadr City.
Two explosive devices were detonated near the convoy. However, there were no casualties.
The attack on the slum, a stronghold of Shia leader Muqtada al-Sadr, was part of an offensive by US-led forces against fighters opposed to the US presence in the country before elections scheduled for January.
A car bomb exploded on Tuesday as the Iraqi national guard was conducting raids in Yusufiya, a city south of Baghdad, killing at least one person and injuring 13, police said.
Car bombs rocked Baghdad and
Mosul on Monday
Nine guardsmen were among the wounded in Yusufiya, 20km south of the capital, said police Lieutenant Abbas Shashati.
The remaining dead and wounded were civilian bystanders, he said.
Shashati ruled out a human bomber, saying the vehicle packed with explosives was parked at the time of the blast.
Earlier on Tuesday an explosion rocked the crowded al-Nahda area in Baghdad, but no further details were available.
Another explosion was heard west of Baghdad, possibly in the Abu Ghraib area, an Iraqi journalist told Aljazeera. Further details could not be verified.
Other air strikes
On Monday, at least 26 people died and more than 100 people were wounded as bombers struck twice in Baghdad and once in the northern city of Mosul.
Air strikes were also launched in Falluja, and in Samarra operations to restore the interim government's control continued.
In a 36-hour blitz, about 3000 US troops and 2000 Iraqi soldiers backed by US warplanes and artillery stormed Samarra, 100km north of Baghdad, in an effort to dislodge an estimated 500 to 1000 armed fighters.
US forces said they killed 125 fighters and captured 88 in the assault, which destroyed dozens of buildings, and according to locals, inflicted a heavy toll on civilians.
Interim Iraqi Defence Minister Hazim Shaalan told al-Arabiya television that Iraqi forces captured 42 suspected foreign fighters there. They included 18 Egyptians and 18 Sudanese.
Falluja residents fear the US
air strikes will continue
Iraq's interior minister, who comes from Samarra, said he did not believe any civilians had been killed in the offensive, a statement which drew an angry response from residents.
Doctors in Falluja said at least seven people were killed and 14 wounded when US warplanes bombarded an area there for the third consecutive night.
Aljazeera has learned that the interim Iraqi President Ghazi al-Yawir and Defence Minister Hazim Shaalan met prominent members and residents of Falluja.
Both sides presented their demands, an Iraqi journalist said.
Residents of Falluja have agreed that the Iraqi national guard may patrol the city on condition that they are from Falluja or its suburbs, so they can be trusted, the journalist added.
The residents refused the presence of US forces in the city.
Falluja residents described the talks with the Iraqi officials as positive, but have said they always fear new US raids as is happening in Samarra.