Counter-terrorism forces detained the Kataeb Hezbollah members late Thursday for allegedly planning a rocket attack on Baghdad's Green Zone, where the US and other embassies as well as state buildings are located.

But the 14 accused were soon handed over to the Hashed al-Shaabi, the umbrella organisation of Iraqi paramilitary groups that has been nominally incorporated into the state.

On Monday, an Iraqi judge ordered the case dropped, Kataeb Hezbollah's military spokesman Jaafar al-Husseini told AFP.

"The judge ordered their release due to a lack of evidence. The arrests shouldn't have happened," he said.

Husseini said they had appeared at a Hashed military tribunal, as Iraq's various security forces each have their own court system.

A Hashed security source confirmed the fighters' release.

According to Iraq's Joint Operations Command, the arrest warrants for the 14 detainees were based on the country's counter-terror law, which carries the death penalty.

It also said the counter-terrorism forces had seized two rocket launchers during the raid as proof of the planned attack.

Kataeb stands accused by Washington of firing deadly rockets on Iraqi bases where American and other foreign troops are based, as well as against the US embassy.

The group has never claimed responsibility for the attacks but has hailed them as a way to pressure US troops out.

It is regarded as extremely powerful due to its links with neighbouring Iran, and many feared the arrests could spark wider confrontations with Iraq's security forces.