Most of the victims had taken police exams just days earlier and were assembled to learn the results, said a policeman.
Dr Abdul Salam al-Jibour at Muqdadiyah General Hospital said 33 in the group were wounded.
In yet another incident, six civilians were killed when a taxi car bomb exploded at a checkpoint near Baghdad University.
By the day's end, at least 52 people were killed or found dead nationwide in strife confined mainly to Sunni enclaves.
The violence in central Baghdad on Tuesday shut down the Sunni-dominated Fadhil and Sheikh Omar neighbourhoods just after 7am local time, the US military said.
After American and Iraqi troops came under fire during a routine search operation, helicopter gunships swooped in, engaging Sunni fighters with machine gun fire.
"The chances of success [in Iraq] are essentially zero because the Iraqi people have no voice"
Non Sequitur, Cadiz, Spain
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Some TV stations reported an American helicopter was shot down in the fight, and showed video of a charred piece of mechanical wreckage that was impossible to identify.
The US issued a statement late on Tuesday saying an attack helicopter suffered damage from small arms fire but returned to base.
A US spokesman said Wednesday that 12 of 15 wounded Americans had returned to duty, though the military initially said 16 soldiers were hurt.
A security crackdown, which began on February 14 and will see nearly 170,000 American forces in Iraq by the end of May, has curbed some sectarian attacks and assassinations in the capital.
The Association of Muslim Scholars, a predominantly Sunni Arab group, issued a statement quoting witnesses as saying that the battle in central Baghdad began after Iraqi troops entered a mosque and executed two young men in front of other worshipers.
|A taxi car bomb exploded at a checkpost|
in Baghdad on Tuesday, killing six [AFP]
Ground forces used tear gas on civilians, it said.
Several blocks from the battle, a rocket slammed into a schoolyard basketball court, killing a six-year-old boy.
AP Television News videotape showed children's backpacks and books still open on classroom desks, covered with shattered glass and debris. Blood was pooled on the dusty tile floor.
Police said it was a stray Katyusha rocket that dug into the asphalt playground and at least 17 were wounded - 15 students and two teachers.
Meanwhile, Nuri al-Maliki, the Iraqi prime minister, who is visiting North East Asia, has rejected an immediate US troop withdrawal, as called for on Monday by his fellow Shia in a huge demonstration in the holy cities of Kufa and Najaf.
"We see no need for a withdrawal timetable. We are working as fast as we can," he said on Tuesday during his four-day trip to Japan, where he signed loan agreements for redevelopment projects in Iraq.
|Central Baghdad's Fadhil district was the|
site of a deadly battle on Tuesday [AFP]
Al-Maliki said: "To demand the departure of the troops is a democratic right and a right we respect.
"What governs the departure at the end of the day is how confident we are in the handover process."
US soldiers killed
In other news, the US military announced the deaths of four more soldiers - three killed by a roadside bomb and secondary explosion in southeastern Baghdad and a fourth in combat in Iraq's western Anbar province.
The roadside bomb victims had been conducting raids against anti-government fighters in the area, and had recently captured five suspects, the military said in a statement.
All were killed on Monday.
At least 3,285 members of the US military have died since the beginning of the war in 2003, according to an Associated Press count. The figure includes seven military civilians.