Nuri al-Maliki, Iraq's prime minister, was in the oil hub city to personally oversee the operation involving thousands of Iraqi troops.
Ali al-Dabbagh, an Iraqi government spokesman, told Al Jazeera that the security forces were fighting against "those that are exploiting the name of the Mahdi, those that are exploiting the name of Muqtada al-Sadr".
"There will be no dialogue with them [the fighters] but there definitely will be dialogue with Muqtada al-Sadr himself," he said.
By nightfall, many towns and cities across southern Iraq were under curfew to try to stem spreading violence.
Police sources said supporters of al-Sadr seized control of five neighbourhoods in the southern town of Kut after clashing with police.
In Hilla, police battled Mahdi Army fighters in two districts in the centre of the southern town.
The Mahdi Army has grown frustrated with a ceasefire imposed by al-Sadr last year.
Its fighters say the ceasefire has been abused by US and Iraqi forces to make indiscriminate arrests ahead of provincial elections.
The US military says it is targeting only "rogue" members who have broken the ceasefire, and has cited the truce as a main factor in a significant drop in violence across the country.
Sheikh Ahmed al-Ali, a member of al-Sadr's office in Basra, said the group could not understand why Iraqi security forces had launched an operation against it.
|Al-Maliki was personally overseeing the|
military operation in Basra [AFP]
"This ongoing operation in Basra appears to be security-related, while, in fact, it is a political one," he told Al Jazeera.
"The al-Sadr trend in Basra has frequently said that it supports the Iraqi government and the Iraqi forces in Basra.
"Al-Mahdi Army is not a military army, as some believe. It is a doctrinal army that serves the society. And that is why al-Mahdi Army has had a great role in supporting the Iraqi security forces in Basra."
Basra province was handed over to Iraqi control by British forces in mid-December and Tuesday's operation was seen as a test for the security forces.