A battalion of Iraqi troops raised and trained by Americans refused to fire on fellow Iraqis in Fallujah earlier this week when ordered to do so by Marines battling for control of the city, a media report said in Washington quoting senior US Army officials.

The battalion on Monday refused to fight after members of the unit were shot at in a Shiite Muslim neighbourhood in Baghdad while en route to Fallujah, a Sunni Muslim stronghold, The Washington Post quoted Major General Paul Eaton as saying.

"We did not sign up to fight Iraqis," the soldiers said and turned the convoy around and returned to the battalion's post on a former Republic Guard base in Taji, north of Baghdad.

Eaton declined to characterise the incident as a mutiny, but rather called it 'a command failure'.

The battalion's refusal came as large parts of Iraqi security forces stopped carrying out their duties, the paper said.