The head of the most powerful Shia militia in Iraq has threatened all-out war in a final ultimatum unless Iraqi and US forces halt operations against his fighters.

The prospect of a showdown with the al-Mahdi Army of cleric Moqtada al-Sadr, who launched two uprisings against US forces in 2004, comes as fears mount of a renewed campaign of bloodletting by Sunni Islamist al-Qaeda.

An upsurge in violence on these two, key fronts could unravel a raft of security gains made by the US military over the past year, at a time when more than 20,000 US troops are withdrawing from the country.

Hojatoleslam al-Sadr issued his threat to Nouri al-Maliki, the Iraqi Prime Minister, last night as operations against his forces continued in the southern oil-hub of Basra, the Baghdad slum of Sadr City and elsewhere.

In a statement posted on his website he said: "I'm giving the last warning and the last word to the Iraqi Government, [to come] to its senses and takes the path of peace. If they don't come to their senses and curb the infiltrated militias, then we will declare an open war until liberation."

The threat came as Condoleezza Rice, the US Secretery of State, made a surprise trip to Baghdad.

Dr Rice praised the work of Nouri al-Maliki, the Iraqi Prime Minister and his the operations against the militias.

She said: "I see a coalescing of a centre in Iraqi politics in which the Sunnis, the Kurdish leadership and the elements of the Shia leadership that are not associated with these 'special groups' [alleged Iranian-backed militants] have been working better than at any time before," she said.

The Sadr movement accuses rival militias linked to other Shia parties of entering the Iraqi security forces, especially in the Shia-predominant south, where various factions are competing for influence in a region home to most of Iraq's oil output.

Mahdi Army fighters, however, are also known to have infiltrated the police and to a lesser extent the army, particularly in Basra.

Mr Maliki deployed thousands of Iraqi soldiers to the port-city a month ago to crackdown on Shia militias and criminal gangs. The surprise offensive, with quickly-scrambled support from the US and British military, was seen by many as a bid to weaken the Mahdi Army, which has enjoyed great influence in the region, ahead of provincial elections later in the year.

After a shaky start in which the militia appeared to have the upper hand, the operation has started to make progress, with Iraqi forces backed by British troops and artillery seizing the Mahdi Army’s stronghold in the city yesterday.

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