Residents in the Shi'a Muslim stronghold said U.S. aircraft and tanks had bombarded homes in operations against Shi'a militiamen who largely control the area.
In a statement, the U.S. military said it conducted what it called "precision strikes" and denied reports of heavy civilian casualties.
Al-Sadr City resident Ali Mutlaq, speaking to Reuters, disagreed with that assessment:
"As usual the warplanes dropped bombs without any reason, there was no resistance," Mutlaq said. "They used to say the Mehdi Army attacked them, but there was nothing yesterday. What is the guilt of the children and the women and the houses that were destroyed?"
Elsewhere, insurgents in the southern city of Al-Basrah killed two British soldiers. And the U.S. military announced the capture of a suspected leader of an Islamic militant group in the northern city of Kirkuk.
In the Sunni Muslim stronghold of Al-Fallujah, the U.S. military said it destroyed a house used by followers of Abu Mus'ab al-Zarqawi. The Al-Qaeda-linked militant's organization has claimed responsibility for several attacks and beheadings of foreign hostages in Iraq.
The military did not say how many people were killed in the strike, which it said targeted high-level members of al-Zarqawi's group.
Al-Zarqawi's group, meanwhile, is reportedly still holding captive English engineer Kenneth Bigley. Bigley and two of his American colleagues were kidnapped earlier this month from their residence in Baghdad. The two Americans have already been beheaded.
Bigley's fate remains unclear, but Britain's leading Muslim group believes he is still alive and has sent a delegation to Baghdad hoping to win his release.
"The group that is holding Ken Bigley, the Tawhid wal Jihad group led by Abu Mus'ab al-Zarqawi, claims to be Muslim," Inayat Bunglawala of the Muslim Council of Britain told RFE/RL. "They claim to justify their actions on the basis of Islam. Now, we utterly reject the killing of hostages and the shedding of innocent blood in the name of Islam. We believe it's blasphemous to say that Islam sanctions such murder."
An Iranian diplomat kidnapped nearly two months ago was freed yesterday. And Egypt's envoy in Iraq, Farouq Mabrouq, confirmed to Reuters in Baghdad today that one of six Egyptian telecom workers abducted last week has been freed:
"We think these groups [who kidnapped the Egyptians] have financial motives and not political ones," Mabrouq said. "Any effort [to release the captives] is appreciated because this is a humanitarian ordeal for the kidnapped and their families. They are here to offer services to the Iraqi people and to reconstruct Iraq."
Jordan's King Abdullah, meanwhile, said today he has reason to believe that two Italian aid workers held hostage in Iraq are still alive. Two French reporters are also still being held in Iraq.
But Abdullah also said he believes that Iraq is too dangerous to go ahead with elections scheduled for January. If it does, Abdullah predicted a good showing by extremists.
For the latest news on Iraq, see RFE/RL's webpage on "The New Iraq".