The commandos died after a bomber drove an explosive-packed car into a police convoy, Iraqi police said.
Ten people were also reported injured in the blast on al-Ghadir street.
The commandos were members of the government's Wolf Brigade, an Interior Ministry official said.
Meanwhile, US troops clashed with forces loyal to a Shia Muslim leader in northeastern Baghdad, killing eight fighters and wounding five.
Iraqi police said US forces entered the Shia district of Sadr City on Sunday, seeking to detain a group of militia members suspected of carrying out attacks.
The Jaish al-Mahdi militia (al-Mahdi Army), are loyal to Muqtada al-Sadr, a young Shia leader whose followers have led two uprisings against US forces.
A US military spokesman confirmed "there were a series of engagements" in the east of the city, but added that no US forces were hurt.
The US spokesman said the clashes, in the east of the city, started shortly before 1am on Sunday (2100 GMT on Saturday) and lasted until about 2.30am.
"It appears we were going out to conduct an operation with the Iraqi army who had thrown a cordon around an area they wanted to search. It looks like they were attacked," the US spokesman said.
A spokesman for Sadr's office in Baghdad put the number of dead in the attack at four.
Shaikh Abd al-Hadi al-Darraji told Aljazeera the US attack was a provocation against Sadr City.
At least four people were killed in
Sunday's attacks in Sadr city
He said several armoured vehicles entered three areas of Sadr City at about 1am and US soldiers dismounted and opened fire indiscriminately.
"People came out of their homes to see what was going on and four were killed and 10 injured - all of them civilians."
He also said he did not believe the people killed in the attack were al-Mahdi Army members.
"We're not confronting the enemy without orders from Najaf," he added, referring to the Shia city which is home to al-Sadr, who launched two uprisings last year against US forces in which hundreds of his fighters were killed.
"They want to provoke al-Sadr people to fight to stop them from taking part in the political process," al-Darraji said.
"We hold the Iraqi government responsible for what is going on in Sadr City and in all Iraq," he added.
"We call for an urgent session to discuss this situation. We also call on the Iraqi government to force these troops out of the country as they pose danger to the sons of Iraq," he added.
US denies provocation
A US military statement however denied the al-Sadr spokesman's charge that its intervention had been a provocation. The military said that its forces on routine patrol reinforced local Iraqi forces who were ambushed by assailants.
The US troops along with Iraqi forces combined to attack the assailants, five to eight of whom died. "The engagement last 90 minutes. No suspects were detained and no Coalition or Iraqi soldiers were injured," the statement said.
Shia leader al-Sadr's militia was largely disarmed in a US-backed cash-for-weapons programme, but while much heavy weaponry was handed over, most militiamen held on to their small arms.
British forces in the southern Iraqi city of Basra have also come under pressure from al-Mahdi Army militiamen this week, after arresting two of their local leaders last Sunday.
Also on Sunday, an explosives-laden bicycle detonated in a busy marketplace in Hilla, killing at least three people and wounding more than 30, Iraqi police said.
Hilla has been the target of large
scale bombings in the past
The explosion took place on the busy al-Maktabat street in the centre of Hilla, about 100km south of Baghdad.
Among the dead was a child.
There were conflicting reports as to the nature of the attack.
Police said a bomber rode into the busy market, where crowds of people were shopping, and detonated his explosives.
However, witnesses said they saw a man in his twenties dressed in a traditional dishdasha (loose robe) leave the bicycle at the pavement kerb.
It exploded about 15 minutes after he disappeared into the crowds.
The blast caused "many casualties", an AFP correspondent on the scene said.
"I saw ambulances taking casualties away and a lot of bodies still on the ground," the correspondent said.
Police said 36 people were wounded, six of them seriously.
Hilla has been the target of several large-scale bombings in the past.
In February, more than 100 people were killed in a car bombing in a central square.
Two killed in heist
Unknown armed men stole $850,000 in cash on Sunday after holding up a convoy of armoured vehicles from the Iraqi Ministry of Finance in Baghdad and killing two people, police said.
The armed men forced the vehicles to halt as they travelled through al-Mansur, an upmarket district in the west of the capital.
It was not clear where the vehicles were headed.
A shootout ensued, in which the armed men killed two guards and wounded nine before escaping with the money, police said.