The fighting was believed to involve elite troops from Britain's Special Boat Service (SBS) and United States marines, the Evening Standard said, without specifying its sources.

The fighting, near the southern Iraqi city of Basra, was part of operations to prepare landing sites for amphibious craft during an invasion, the paper said.

Other special units were deep inside Iraq on secret operations to prepare landing strips in the desert for airborne troops, the report added.

But in Washington a Pentagon spokesman, Tim Blair, denied the reported clash.

"I am denying this," he said, adding that it was probably related to an earlier incident involving Kuwaitis and Iraqis.

WAR.WIRE