At least one person was killed and four wounded in the fighting, which broke out early on Monday.
According to unnamed police sources, residents of Adhamiya, a stronghold of Sunni insurgents, began fighting to prevent a Shia militia from entering alongside Iraqi security services.
Also on Monday, one civilian was killed and three others wounded when a roadside bomb targeting an Iraqi army patrol blew up in central Baghdad.
"Adhamiya residents have taken up arms to prevent the Shi'ite militia from entering. There are bodies on Omar bin Abdul Aziz street but police forces can't get to the area," the source said.
A resident of Adhamiya who gave his name only as Ghina said "fierce clashes" were taking place in the area.
"I heard explosions. Fighting is still taking place but it is not as heavy," Ghina said.
Sunni leaders accuse the Iraqi interior ministry of sanctioning Shia militia death squads, a charge the government denies.