A suicide bomber struck a funeral in northern Iraq on Thursday, killing 50 mourners and wounding 55 in an attack that suggests militants have launched a new campaign of violence in the north.

Survivers said the funeral had been for two members of a U.S.-backed neighbourhood security unit who were killed on Wednesday. Blame is likely to fall on the Sunni Islamist al Qaeda, which has vowed to target the neighbourhood units because they work with U.S. forces.

The attack was one of the deadliest in Iraq for months and underscored the ability of militants to wreak havoc despite overall falls in violence that have prompted the United States to start withdrawing troops from Iraq.

Police said the bomber detonated a suicide vest after entering the funeral tent in a Sunni Arab village near the town of Adhaim in Diyala province. They put the final death toll at 50.

"Suddenly a fireball filled the funeral tent. I fell to the ground. I saw bodies scattered everywhere," said wounded mourner Ali Khalaf, who was taken to a hospital in the nearby town of Tuz Khurmato for treatment.

Outside a hospital in the northern city of Kirkuk, where pickup trucks took many of the bodies, frantic relatives gathered to look for their loves ones. Several women wearing black robes sat on the ground, wailing.

Northern Iraq has seen an upsurge in bombings this week, including one that killed 40 people in the town of Baquba, capital of Diyala province, on Tuesday.

The U.S.-backed neighbourhood security units, called "Concerned Local Citizens" by the U.S. military, have been credited with helping to bring down violence in Iraq.

Around 90,000 men, mainly Sunni Arabs and including some former Sunni Arab insurgents who have turned against al Qaeda, have been recruited. They largely man checkpoints and provide intelligence tips to the U.S. military.

U.S. and Iraqi authorities say al Qaeda militants have moved into northern provinces after being pushed out of the westerly Anbar province, their former stronghold, and also Baghdad.

Prime Minister Nuri al-Maliki, in a speech during a trip to Brussels on Wednesday, said Iraq was "near to announcing victory over the terrorist organisation al Qaeda".

But U.S. commanders say that while al Qaeda has been significantly weakened, it still has the capability to carry out big attacks.

MORE FIGHTING IN SADR CITY

In Baghdad, fighting has been dominated by weeks of clashes between gunmen and security forces in the Shi'ite slum of Sadr City, stronghold of the anti-American cleric Moqtada al-Sadr. Fresh battles erupted overnight, officials said.

U.S. military spokesman Major Mark Cheadle said five gunmen had been killed in the early hours of Thursday in three separate incidents, including an air strike.

Hospitals in Sadr City said they had received nine bodies and 36 wounded after clashes and air strikes.

Most U.S. troops in Iraq are deployed in Sunni Arab areas, which have become quieter in the past year after a "surge" in U.S. forces. But troop levels are being cut. By July, 20,000 U.S. soldiers will have left Iraq, bringing numbers to 140,000.

Al Qaeda militants are frequently blamed for attacks on funerals, which are often held with little security. The group also has a history of striking with car bombs near government targets and civilian crowds.

While the U.S. military says security has improved in the north, the strikes this week have been a reminder of the instability there at a time when attention has been focused on fighting in southern Shi'ite areas that erupted late last month.