BAGHDAD, Iraq - Iraq's most influential Shiite cleric today demanded that all armed groups withdraw from the embattled holy cities of Najaf and Karbala, where nine militiamen loyal to a rebel cleric were killed in heavy fighting with U.S. forces.

The statement by Grand Ayatollah Ali al-Husseini al-Sistani came after the U.S. administrator in Iraq vowed to continue the transfer of sovereignty to Iraqis as scheduled despite Monday's killing of the head of the U.S.-appointed Iraqi Governing Council.

"Terrorists are trying to stop Iraq's march to sovereignty and peace," U.S. administrator L. Paul Bremer said at a memorial service in Baghdad for Izzadine Saleem, who was killed by a suicide bomber Monday at a checkpoint near coalition headquarters. "They will not succeed."

The killing was a major setback to American efforts to stabilize Iraq just six weeks before the June 30 handover of sovereignty.

The U.S.-led coalition is struggling to contain an insurgency in Sunni areas north and west of Baghdad, as well as an uprising in the Shiite heartland to the south led by radical cleric Muqtada al-Sadr.

Al-Sistani, whose office in Najaf came under fire in overnight fighting, urged Iraqis not to travel to the city to join in protests.

Al-Sadr had called for peaceful demonstrations against incursions and damage to mosques and shrines in recent fighting, allegedly by American troops. The U.S. military says militiamen have used some Muslim holy places as firing positions and weapons storage sites.

Moderate clerics, including al-Sistani, are believed to have tense relations with al-Sadr.

Early today, U.S. troops killed nine fighters loyal to al-Sadr in Karbala, said Mutaz al-Hasani, a witness who saw their bodies. Ten Iraqi fighters were wounded in the clashes, which lasted more than an hour on streets near the city's Imam Hussein and Imam Abbas shrines.

U.S. troops and militiamen also fought in the Mukhaber district of Najaf, 45 miles southeast of Karbala. Explosions and heavy firing were heard overnight.

A Najaf hotel housing correspondents of the Arab news network Al-Jazeera and a Kuwaiti TV crew was damaged in the fighting, but no injuries were reported.

Two mortar shells fell today on houses near a compound formerly used by the Iraqi security service in the Baghdad neighborhood of Baladiyat. Three civilians were injured.

Gunmen also opened fire today on a convoy of civilian cars in the northern city of Mosul, killing one foreign security guard, the U.S. military said, although it did not give a nationality.

American troops sealed off the area after the attack, witnesses said. Witnesses earlier said two foreigners were killed and another was injured.

Al-Sadr's militia, al-Mahdi Army, launched an uprising against the coalition in early April. Al-Sadr, a fierce opponent of the occupation who is based in Najaf, is wanted on charges of killing a rival moderate cleric last year.

On Monday, the U.S. military said that U.S. soldiers found a roadside bomb containing sarin nerve agent in Baghdad. The device apparently was a leftover from Saddam's arsenals. It was unclear whether more such weapons were in the hands of insurgents.

At Saleem's memorial, his family and members the Governing Council gathered inside the so-called Green Zone, which houses the coalition headquarters. Iraqi security forces in desert camouflage carried Saleem's coffin, which was draped with the Iraqi flag, from the hall after the service.

Bremer and other dignitaries, including new Governing Council chief Ghazi Mashal Ajil al-Yawer, a Sunni Muslim civil engineer from Mosul, kissed and shook hands with Saleem's grieving relatives.

U.N. envoy Lakhdar Brahimi, who is consulting Iraqis about the makeup of the interim government that will take office after June 30, also attended the ceremony.

"We're all working together in order to rebuild Iraq, which he sacrificed his life for," Brahimi said. "We express our cordial sorrow to his relatives and to the Iraqi people."

In London, British Foreign Secretary Jack Straw said today that the situation in Iraq is tougher than Britain anticipated last year.

"It's palpable that the difficulties which we have faced have been more extensive than it was reasonable to assume nine months ago," Straw told British Broadcasting Corp. radio.

Saleem, also known as Abdel-Zahraa Othman, was waiting in a Governing Council convoy at a U.S. checkpoint along a tree-lined street preparing to enter the Green Zone when the bomb was detonated. It apparently had been rigged with artillery shells and hidden inside a red Volkswagen. At least six other people were killed and 16 were wounded, including two U.S. soldiers.

Saleem, a Shiite Muslim in his 60s, held the rotating presidency of the 25-member Governing Council for May. He was the second council member slain since their appointment last July; Aquila al-Hashimi was mortally wounded by gunmen in September.

It was unclear whether the Governing Council planned to appoint another delegate to the council following Saleem's death. Two council members took Cabinet positions in April, and were not replaced. So there are currently 22 members, down from the original 25.

The U.S. military said the car bombing was a suicide attack and Kimmitt said it had the "classic hallmarks" of Abu Musab al-Zarqawi, a Jordanian-born militant with links to al-Qaida.

However, a previously unknown group, the Arab Resistance Movement, claimed responsibility, saying in a Web site posting that two of its fighters carried out the attack on "the traitor and mercenary" Saleem.

Kimmitt said he did not know if the Arab Resistance Movement was "a cover for the Zarqawi network or if it's an actual organization."

Al-Zarqawi is believed responsible for many of the vehicle bombs in Iraq in recent months and for the beheading last week of U.S. civilian Nicholas Berg.

Also today, Iraq's deputy foreign minister Hamid al-Bayati said he will ask the United Nations in talks later this week to give the country's coming government full control of oil revenues and to scrap or reduce Iraq's debts and war reparations.