A senior defense official acknowledged there was some "repositioning" of marines in the city and discussions aimed at involving Iraqi security forces.

Marine officers in Fallujah told reporters that marines from 1st Battalion, 5th Marine regiment would withdraw from the city's southern industrial zone to a base outside the city, and hand over security to an Iraqi security force.

The move followed closed door discussions between Lieutenant General James Conway, commander of the 1st Marine Expeditionary Forces, and a group of Iraqis.

"I'm told, having talked to the right people, there is no peace agreement, there is no pact. There is continuing discussions that are ongoing," a senior defense official said, speaking on condition of anonymity.

"But the situation is very much like it was yesterday. They are looking for ways to involve more Iraqi security forces into the situation. And what has been seen as some movement has been described to me as some repositioning," the official said.

Military officials here said they knew nothing about the Iraqi force that was supposed to replace the marines in the city, the Iraq Protection Army led by a former Iraqi general.

"It sounds like something is happening tactically that hasn't come up here yet," a second defense official said.

But the official insisted that marines were not withdrawing from Fallujah, a Sunni hotbed that has been the scene of fierce fighting over the past month since four US contractors were ambushed and killed in the city.

"It's safe to say that the marines will remain engaged in Fallujah both in discussions and physically," the official said.

"To suggest they are fully removed from Fallujah is not accurate," he said.

WAR.WIRE