FIGHTING was raging in the area of Baghdad's landmark al-Rashid hotel, which has been cordoned off by Iraqi fighters, hours after a US raid on the nearby presidential palace, AFP correspondents said.
Iraqi paramilitary fighters were seen firing assault rifles and rocket-propelled grenades from different angles toward the area of the al-Rashid, they said.
It was not clear who was returning fire, as the entire neighbourhood has been cordoned off by Iraqi forces since the lightning raid in the morning by US forces on the Republican Palace compound in central Baghdad.
Two abandoned police cars damaged by shelling were seen on the corner of a road leading to the hotel.
A green civilian car was also damaged from shelling a few metres away, at the entrance of the al-Alawi bus station which has been empty since the morning amid US forces' onslaught.
There were no immediate reports of casualties.
The Rashid Hotel has long been the residence of foreign dignitaries and journalists in Baghdad.
It became famous after the 1991 Gulf War for a mosaic portrait of the former US president George Bush set into the entrance, forcing all visitors to walk over his face.
Most journalists have left the Rashid Hotel for security reasons amid the week-old US and British offensive to topple Iraqi President Saddam Hussein.