They said gunmen began killing people after setting up fake checkpoints in the neighbourhood of Jihad and also raiding people's homes.

"They also went into certain Sunni houses and killed everyone inside," a witness who declined to be named told AFP.

"Outside the mosque I saw the bodies of 10 men, all shot in the head, and they showed severe signs of torture," said Sheikh Abdel Samad al-Obeidi, imam of the Sunni Fakhri Shanshal mosque in the neighbourhood, which was bombed on Friday killing two. "I blame the Mehdi Army militiamen for this killing -- it is all in the open now," he added, referring to the armed group linked to radical Shia cleric Moqtada al-Sadr.

He also accused police commandos, who have checkpoints in the area, of being "complicit in the crime for turning a blind eye".

In the runup to Sunday's rampage, Sunni and Shia holy places were increasingly targeted in ongoing civil strife in Baghdad, with the Shia Fatima Zahra mosque being bombed on Saturday.

In past months there have been more and more sectarian-linked attacks in the capital's neighbourhoods.

Sheikh Mahmud al-Sudani, the imam of the Shia mosque, told AFP the attacks were carried out by relatives of Shias who had been killed or driven out of the predominantly Sunni neighbourhood in recent months.

"For the past five months Shias have been killed and evicted from the neighbourhood. Those Shias killed come from tribes from the south that wanted to take revenge," said Sudani, a follower of radical Shia cleric Moqtada al-Sadr.

"The hair that broke the camel's back was the attack on the mosque yesterday (Saturday)," he said.

Fakhria Hussein, a Shia resident of the neighbourhood who works outside it, received a call from her son telling her not to come home because it was too dangerous.

"He told me that masked men stormed into our neighbours' home, a Sunni, and he heard shots and screams," she said.

Firas Shimmari, a security guard, received a similar call from his brother who reported that the gunmen were checking people's IDs and attacking them if they indicated the person was Sunni.

"They looked at his ID and asked him where he was from and he said (the Shia holy city of) Karbala, so they told him 'you are fine'," said Shimmari, adding that his brother had seen corpses by the side of the checkpoint.

The massacre ended only when US and Iraqi forces surrounded the area and imposed a curfew.

A wave of sectarian violence has engulfed Iraq, especially Baghdad, since the bombing of a revered Shia shrine in Samarra in February.

Sunday's rampage came despite a massive security clampdown on the capital over the past four weeks, with tens of thousands of troops patrolling the streets.

In other violence at least eight people were killed in Iraq Sunday, including two Sunni clerics from the powerful Muslim Scholars Association, a Sunni religious body.

The two were shot dead by gunmen in the northern town of Samarra.

Mahmud Mustafa al-Darji of the Ahmed Ibn Hanbal mosque and Hussein Alaa Khalaf al-Abassi of the Abdullah Ibn Massud mosque were shot dead by gunmen dressed in shirts usually worn by Iraqi security forces, police said.

Meanwhile, the abductors of a Sunni woman MP made a new demand for her release Sunday.

The kidnappers of lawmaker Taiseer al-Mashhadani demanded the release of 25 prisoners held in US jails in Iraq in return for her freedom, a Sunni politician told AFP.

They freed two of the seven bodyguards captured along with her on July 1 in Baghdad.

Mashhadani is a member of the Sunni National Concord Front, the largest Sunni Arab parliamentary bloc.

On Sunday the Iraqi army said it captured a top rebel from the militant group the Islamic Army in northern Iraq.

A senior military officer said Ali Najm Abdullah, also known as Abu Hozeifah and the number two in the Islamic Army, was captured in a raid at 6:00 am (0200 GMT) on Sharifiyah village in the insurgent-plagued district of Hawijah, west of the oil city of Kirkuk.

The officer said Abdullah and his commander Abu Aesha were responsible for nearly 75 percent of insurgent attacks in northern Iraq's Kirkuk, Mosul and Tikrit regions.

Abu Aesha is still at large.

In 2004 the Islamic Army kidnapped two French journalists, who were later released. It also abducted and subsequently killed an Italian journalist.