The Central Bank of Iraq (CBI) at the weekend devalued the currency by over a fifth against the US dollar, officially re-pegging the dinar at a bank rate of 1,460 to the greenback.

On Monday, hundreds gathered in Baghdad's Tahrir Square, demanding the government change tack, furious at the first devaluation in a half-decade.

"The government should collapse before the dinar," one sign held by a young protester read.

Many of the protesters were elderly, who said the value of their pensions had been cut.

Riot police with shields and helmets stood guard at Tahrir, but the protest was peaceful.

Tahrir Square had been occupied round-the-clock for a year by a protest movement demanding an end to government corruption, but the demonstrators were cleared out in an army-led operation in October.

Iraq, which relies on oil sales to finance more than 90 percent of its budget, is set to see its economy shrink by 11 percent this year, while poverty doubles to 40 percent of the country's 40 million residents, according to International Monetary Fund estimates.

- 'Struggling to shop' -

"If we hadn't changed the currency rate or adjusted our expenditures, our (foreign currency) reserves could have run out in six or seven months," Finance Minister Ali Allawi told local reporters on Sunday.

The devaluation sparked panic, as people rushed out after its announcement to buy dollars or stock up in supermarkets before price rises hit.

Elsewhere on Monday, hundreds marched in the eastern city of Kut, near the border with Iran, where traders said imports would be hit as they used dollars to buy goods from outside.

Prices at food markets and wholesalers in the southern city of Nasiriyah rose by around 20 percent, an AFP correspondent said.

"We're struggling to shop," said Saadi Sahib, a pensioner. "Basic foodstuffs have become more expensive after this sudden change in the price of the dollar."

In the southern port of Basra, the head of the city's human rights commission Mehdi al-Tamimi said the jump in food prices was a "shock" to consumers.

CBI governor Mustafa Ghaleb Mukhif told state media in a rare interview on Sunday that the bank agreed to the devaluation on the condition the finance ministry carry out reforms.

The draft 2021 budget includes plans for an income tax, lower tariffs on electricity and other ways to try to cut spending, in addition to the devaluation.