Monday's attack lasted about 10 minutes, police Major Falah al-Hamdani said. Five police officers were wounded.
The fighters, who used rocket-propelled grenades and automatic weapons, withdrew after the short clash. It was not clear if they suffered any casualties.
At least four US Apache and Blackhawk helicopters could be seen flying over the area in central Baghdad after the firefight, including one with large Red Cross signs on it.
The Apaches were later joined by US army patrols in armoured vehicles combing the streets in an apparent effort to engage the fighters.
Separately, two British soldiers were killed on Monday in a roadside bombing in southern Iraq, a British military spokesman told AFP.
The two soldiers, whose identity was not immediately released, "died from injuries sustained by a roadside bomb at approximately 11.30 am (0730 GMT) in Basra province", according to a military statement.
Iraqi security forces are being
deployed in Karbala
Local sources said the men were killed near al-Zubair, 20km, south of Basra when one of two military vehicles hit a bomb.
In another development, a curfew was imposed on the southern Iraqi city of Karbala from 8am until 3pm (0500 to 1200 GMT) on Monday, the Iraqi police chief in Karbala city, Karim Hajim al-Hasani, said.
The decision came after reported information that "terrorists" had sneaked into the city to carry out operations there.
Iraqi security authorities will deploy 5000 policemen in the city and close all its gates, preventing people from entering or leaving.
Iraqi journalist Walid Khalid said the security measure may be nothing but a practice run to ascertain the strength, intelligence and deployment capabilities of Iraqi security forces in such places.
This is particularly so, as a Shia religious event will be taking place in the city on 19 September.
Hundreds of thousands of visitors are expected to flock to Karbala city on that day, Khalid told Aljazeera.
The journalist added that information provided by the city's police chief of suspected fighters sneaking into the city, could not be verified.
Hundreds of thousands are to
flood Karbala on 19 September
Iraqi security forces have been deployed in all areas in Karbala city, Khalid reported.
The city's streets are deserted. However, no raids or arrests have been carried out in the city thus far, he added.
Tal Afar attacks
Elsewhere in the country, US forces and Iraqi National Guards raided parts of Tal Afar, including al-Qadisiya, al-Sarai and Hai Saad, Iraqi journalist Nasir Ali told Aljazeera.
Joint forces, backed by tanks, Apache helicopters and F16 fighter jets, bombed several houses in the city.
Four mosques in Tal Afar also came under air attack, the journalist said.
The search and arrest campaign has been ongoing for months, he added. US forces, based in Tal Afar airport, launch daily artillery attacks on some areas of the city, he added.
More than eight people have so far been killed, many others injured and many houses destroyed in these attacks, he said.
More than 70 people have also been arrested and the number of the injured is unknown as they cannot be transferred to hospitals, he added.
The attacks and military operations mainly focus on Sunni areas in the city, Ali continued.
Joint US-Iraqi forces raided
several houses in Tal Afar
Some residents have held Badr Organisation in Tal Afar responsible for these attacks, he said.
The residents believe that Badr Organisation directly supports the US forces and Iraqi National Guard in launching these attacks against the Sunni areas, he added.
More than 90% of Tal Afar families have fled the city, the journalist said.
On Sunday, US troops killed seven fighters in Tal Afar, including six who fired at the Americans from a mosque, the US command said.
Iraqi officers said well-armed fighters controlled the centre of Tal Afar, and their ranks included fighters from Yemen, Syria, Saudi Arabia and other Arab countries.
The US military also said its troops had detained seven suspected fighters during an early morning raid on Friday in the western al-Rashid district of Baghdad.
During the raid, Task Force Baghdad soldiers uncovered weapons, $600,000 in Iraqi currency, and fake Iraqi police uniforms, said a statement released on Monday.
One fighter was wounded in a small-arms fire exchange during the raid.
The Iraqi government confirmed on Sunday Saddam Hussein's trial date for 19 October, while his family chose a new international lawyer to defend him against war crimes charges.
"We have formed a legal defence team that includes prominent American, European, Asian and Arab lawyers who were chosen on the basis of competence and merit to put up a strong defence," said Abd al-Haq al-Ani, legal adviser to Saddam's eldest daughter, Raghad, who is authorised to act on behalf of the family.
Saddam's family has picked a new
lawyer to represent him
Iraqi government spokesman Laith Kubba confirmed that Saddam and several aides would go on trial on 19 October on charges of killing dozens of Shia villagers at Dujail in 1982.
On Friday, a government source, who is not attached to the Special Tribunal trying the deposed president and his aides for crimes against humanity, forecast a quick trial and execution.