Powerful Shia leader Moqtada Sadr gave a press conference on Tuesday calling on his supporters to immediately withdraw from protests outside the Iraqi parliament after fighting raged for a second day and at least 30 people, mostly Sadr supporters were killed.
Iraqi Prime Minister Mustafa Al-Kadhimi praised the speech.
Tensions have soared in Iraq amid a political crisis that has left the country without a new government, prime minister or president for months, and escalated sharply after Sadr's supporters on Monday afternoon stormed the government palace following an earlier announcement by the leader that he was quitting politics.
The violence pitches backers of Sadr against rival Shia factions backed by neighbouring Iran.
Overnight, shelling targeted the high-security Green Zone that houses government buildings and diplomatic missions, a security source said, amid angry protests after Sadr's surprise announcement.
At least seven shells fell in the high-security Green Zone, the security source said on condition of anonymity, but it was not immediately clear who was responsible.
The security source said Sadr's supporters opened fire at the Green Zone from the outside, adding security forces inside "were not responding".
After a lull in violence, fresh clashes between Sadr's supporters and the Popular Mobilisation Forces (PMF), former Tehran-backed paramilitaries integrated into the Iraqi forces, erupted again on Tuesday morning.
The rattle of automatic gunfire and heavier explosions of rocket-propelled grenades could be heard from the Green Zone.
The United Nations mission in Iraq warned of "an extremely dangerous escalation" and called on all sides to "refrain from acts that could lead to an unstoppable chain of events".
"The very survival of the state is at stake," it warned.
The New Arab is providing live updates as Iraq enters into a perilous new phase, with fears of a new civil war on the horizon.
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