A close aide to Shi'ite cleric Moqtada al-Sadr's ordered his Mehdi Army militiamen on Thursday to observe a ceasefire after they clashed with Iraqi and U.S. soldiers in the southern city of Kut.

Sadr, whose militia fought two battles against U.S. forces in southern Iraq in 2004, extended a seven-month-old ceasefire last month, but at the weekend issued a statement telling followers they could defend themselves if attacked.

The violence in Kut, 170 km (105 miles) southeast of Baghdad, raised fears that the ceasefire was unravelling.

"We call on them to calm down and to cease fire and to stop shedding the blood of Iraqis, this is the opinion of Sadr, whether it is in Kut or any other Iraqi provinces," aide Luwaa Sumaisem told Reuters in the holy city of Najaf.

Since January, violence in Iraq has increased.

The body of Paulos Faraj Rahho, the Chaldean Catholic archbishop of Mosul who was kidnapped last month, was found dumped in the northern city on Thursday, police said. It was not clear how he had died, they said.

At least 12 people were killed and 49 wounded when a bomb exploded in a parked car in the busy shopping district of Bab al-Sharji in central Baghdad on Thursday, police said.

Militia fighters in Kut battled Iraqi and U.S. forces on Tuesday in day-long clashes that police said killed 11 people, and late on Wednesday night gunmen in a neighbourhood with a strong Mehdi Army presence fired rockets at a nearby U.S. base.

A police official said as many as 11 Katyusha rockets landed on the U.S. base. Residents said the attackers were Mehdi Army.

Two brothers were killed and four other people, including a 6-year-old girl, were wounded when U.S. soldiers responded with mortar rounds, the police official said.

A U.S. military spokeswoman said troops had responded after four rockets were fired at the base. She had no information on civilian casualties but said no U.S. soldiers had been hurt.

There were no reports of fighting involving the Mehdi Army, which has thousands of fighters, elsewhere in Iraq on Thursday, suggesting the violence in Kut was isolated.

IGNORING CEASEFIRE

A senior Mehdi Army leader in Baghdad's sprawling Sadr City slum, Sadr's main stronghold, distanced the militia from the fighting in Kut, saying the gunmen there were ignoring the cleric's ceasefire, which he first called last August.

"Moqtada al-Sadr's orders should be observed and respected. Groups acting against it will not be considered part of the Mehdi Army and they will be responsible for their own acts," said the leader, who spoke on condition of anonymity.

Sadr's statement telling followers they could defend themselves if attacked was seen as a response to resentment among fighters who felt the ceasefire tied their hands.

Many members have complained that U.S. and Iraqi security forces have abused the truce to make indiscriminate arrests.

"In the past few months, attacks by the United States have not been very discriminatory," said Peter Harling, a Damascus-based analyst at the International Crisis Group think-thank.

The U.S. military has said it is targeting rogue members of Sadr's militia who are ignoring the ceasefire, but Sadrists say many ordinary members have also been detained.

"There is tremendous frustration among Sadrists at the rank and file level," Harling said. But, he added: "I would be surprised if this spread and turned into an all-out civil war."

The ceasefire, which Sadr first called last August, has been praised by U.S. commanders for helping reduce violence, with attacks across Iraq down by 60 percent since last June.

But U.S. forces are stretched thin by the recent rise in attacks in Baghdad and northern Iraq, where they have launched offensives against al Qaeda, seen by Washington as the biggest threat to peace in Iraq.

Prime Minister Nuri al-Maliki blamed al Qaeda for the death of Archbishop Rahho, whose body police said was found in a city neighbourhood known to have an al Qaeda presence.

Rahho was seized on February 29 after gunmen attacked his car in eastern Mosul, 390 km (240 miles) north of Baghdad, killing his driver and two guards.