Two Americans were killed, the US military said, when an attack helicopter went down during the daylong battle in what was one of the strangest incidents of the four-year conflict. Iraqi officials said the helicopter seemed to be shot down.
According to one Iraqi political source, hundreds of fighters drawn from both Sunni and Shia communities were still fighting. A Reuters reporter at the scene, 160km south of Baghdad, saw US tanks and heard blasts after dark and an Iraqi officer said F-16 jets were bombing the area.
Details of the day's fighting were sketchy and the origins of the fighters unclear. An Iraqi army source said some of the dead wore headbands declaring themselves a "Soldier of Heaven".
The governor of Najaf province said the group had gathered in orchards near the city and had been planning to attack the main Shia clerical leadership on Monday. It is the climax of the Ashura.
Earlier, the governor described the fighters as Sunnis, the majority in the Arab world and the once dominant minority in Iraq, where Shias have been in the ascendant since the US invasion of 2003. The two sects are embroiled in conflict that many fear is descending into all-out civil war.
But political and security sources said they were followers of Ahmed Hassani al-Yemeni and described him as an apocalyptic cult leader claiming to be the vanguard of the Mahdi - a messiah-like figure in Islam whose coming heralds the start of perfect world justice. He had been operating from an office in Najaf until it was raided and closed down about 10 days ago.
In Baghdad, 13 people were killed in bombings in mainly Shia areas, police said. In a Sunni area, five girls were killed when a mortar struck their schoolyard.
Twin car bombs targeting ethnic Kurds killed 16 people as night fell in the northern oil city of Kirkuk, whose population is a volatile mix of Kurds, Turkmen and Sunni and Shia Arabs.
Najaf governor Asaad Abu Gilel told Reuters the authorities had uncovered a plot to kill some of the clerics on Monday, to coincide with the climax of Ashura: "There is a conspiracy to kill the clergy on the 10th day of Muharram," he said.
The Reuters reporter about 1.5km from the fighting said he heard intense gunfire and saw US helicopters rocket groves sheltering militants. He saw smoke trailing from one helicopter before it came down in the midst of the fighting.