The killing of Wissam Abu Qader, the commander of the Shia Mehdi Army, and two of his aides, immediately raised the prospect of retaliatory attacks on UK forces.

The Iraqi police stated that Qader had been killed in a gun battle with British forces in central Basra.

The Sadr organisation also blamed the British for the death, claiming Qader and his men were killed as they left a mosque after Friday prayers. One official of the group, Abdul Mahdi al-Mutir, said: "We heard it was the British troops who killed him. Maybe there were Iraqi forces with them, but we do not know for sure. They ambushed and killed them at the entrance to a holy place."

But the British Army said that the Mehdi Army commander was killed by Iraqi special forces while "resisting arrest" as he left the offices of the Sadr organisation in central Basra in an operation authorised by the Iraqi government.

The British spokesman, Major David Gell, said Qader was wanted for planting roadside bombs, weapons trafficking, political assassinations and carrying out attacks on British forces.

Around 200 British troops from the 2nd Battalion, the Duke of Lancaster's Regiment and 4th Battalion the Rifles Battle Group were involved in the mission alongside Iraqi troops. Qader, who was accompanied by a number of aides, was, according to British officials, ordered to surrender after being stopped at around 3.30pm. Instead he is said to have opened fire and been shot dead in the ensuing exchange. "During the arrest operation the targeted individual was killed ... after he resisted arrest," said Major Gell.

Qader, who also uses the name Wissam al-Waili, was only 23 years old, but had built up a formidable reputation in Basra after taking over from Ahmad Fartusi, a Mehdi Army leader arrested by British forces in the autumn of 2005.

Qader has been responsible for carrying out attacks against the Mehdi Army's main Shia opponents, the Badr Brigade, as well as British troops. He is said to have been particularly proficient in the use of "shaped charges", sophisticated explosive devices which, the UK and US governments claim, are supplied by Iran. According to Iraqi officials, Qader met Sadr on several occasions at Najaf and had easy access to the radical cleric. There are also reports that he had visited Iran.

The British named Qader as one of the organisers of the recent upsurge in violence in the south which made last month one of the bloodiest for UK forces since early days of the operation with 12 soldiers killed.

The Sadr organisation in Basra has claimed that British forces have been increasingly siding with the Badr Brigade, in the guise of imposing law and order. They say that this has been done as part of a US plan to target Muqtada al-Sadr.