Attacks on Westerners -- once a rare event in Basra -- have targeted British and U.S. diplomatic convoys in recent weeks and killed at least eight Britons and Americans.
Earlier Monday, gunmen loyal to Sadr attacked the house of Basra's governor to press demands for the release of two prominent members of the cleric's militia whom British forces arrested Sunday.
The killing of the New York Times reporter took place six weeks after an American freelance journalist, Steven Vincent, was kidnapped and killed in Basra, allegedly after being taken away in a marked police car. Vincent had published numerous articles, including in the Times, alleging heavy-handedness by Basra security forces and deriding Sadr and other Shiite officials.
Britain is the second-leading contributor of foreign troops to the U.S.-led coalition in Iraq, with 8,500 troops compared with 140,000 Americans.
Iraqi security officials on Monday variously accused the two Britons they detained of shooting at Iraqi forces or trying to plant explosives. Photographs of the two men in custody showed them in civilian clothes.
When British officials apparently sought to secure their release, riots erupted. Iraqi police cars circulated downtown, calling through loudspeakers for the public to help stop British forces from releasing the two. Heavy gunfire broke out and fighting raged for hours, as crowds swarmed British forces and set at least one armored vehicle on fire.
Witnesses said they saw Basra police exchanging fire with British forces. Sadr's Mahdi Army militia joined in the fighting late in the day, witnesses said. A British military spokesman, Darren Moss, denied that British troops were fighting Basra police.
Another Western military spokesman in Basra confirmed "an ongoing disturbance" in the city on Monday but said Iraqi and British forces were working together to quell it.
In the southern city of Latifiyah, an insurgent stronghold, bombs targeted Shiite pilgrims driving and walking to Karbala for an annual rite. A car bomb hit the crowd of pilgrims first, followed 10 minutes later by mortar rounds, said police Capt. Muthanna Ahmed.
A suicide bomber killed five Iraqi policemen and two civilians Monday when he blew himself up near an Iraqi police commando patrol in Mahmudiyah, about 15 miles south of Baghdad, the Associated Press reported.
Special correspondents Saad Sarhan in Najaf and Omar Fekeiki in Baghdad contributed to this report.