Heavy fighting erupted in Iraq's southern oil hub of Basra on Tuesday, and a military official said a major operation had been launched against armed groups in the city.

Rival factions from Iraq's Shi'ite Muslim majority and criminal gangs have been competing for control of Basra.

A Reuters witness said he could see columns of black smoke and hear the sound of explosions and machinegun fire in Iraq's second city and gateway to the Gulf.

The operation was launched after Prime Minister Nuri al- Maliki visited Basra on Monday and vowed to re-impose his government's control over the city, whose oil fields are the source of most of Iraq's revenues.

There were no immediate reports of work stopping in the oil fields.

"Basra is half empty. There are no vehicles and no one is going to work. People are afraid to go out," said a military official in the city, speaking on condition of anonymity.

A hospital source said "tens of wounded" were arriving at hospitals and that some were too busy to accept more casualties.