Iraqis on Wednesday joyously welcomed US marines driving through eastern Baghdad even as looters had a free run of government buildings with the collapse of President Saddam Hussein's authority.

Hundreds of jubilant Iraqis cheered, danced, waved and threw flowers as marines advanced through eastern Baghdad and into the centre of Saddam's seat of power.

Reuters correspondent Sean Maguire said crowds mobbed a marine convoy as it drove from the suburbs to the Martyr's Monument, just 3km east of the central Jumhuriya bridge over the Tigris River.

"These are quite extraordinary scenes," he said after a morning drive through the rundown sprawl of the Shi'ite Muslim-dominated Saddam City and then the more prosperous, leafy districts.

Thousands of US troops moved towards the centre of the Iraqi capital overnight from the west, northeast and south, meeting little resistance.

Residents woke to the sound of birds chirping and only occasional shooting after one of calmest nights since the war began on March 20.

There were no signs of Iraqi police or troops on the main streets. Information Ministry officials, who have shadowed reporters through the conflict, were nowhere to be seen.

Looters were quick to take advantage. Reuters Television crews watched cheering crowds ransack the UN headquarters in the Canal Hotel to the east and drive off in UN cars.

Another witness saw looters raid sports shops around the bombed headquarters of the Iraqi Olympic Committee, headed by Saddam's elder son, Uday, who also leads the Fedayeen militia.

US forces moved into the sprawling, poor Shi'ite suburb of Saddam City in the northeast, home to at least two million people, on Wednesday morning.

"I don't think I heard a single shot being fired," said Maguire, who accompanied the marines into Saddam City.

There was little sign of the Iraqi fighters who had put up fierce but seemingly disorganised resistance since US forces appeared on the outskirts of the capital last Friday.

A British military spokesman said the battle for Baghdad had switched from attacks on military and 'regime' targets to a phase of close fighting with local pockets of resistance.

"A lot of it appears to be local initiative," Group Captain Al Lockwood said.

One Iraqi grenade fired over the Tigris river landed near US tanks at a presidential compound on the western bank. A Reuters reporter said it seemed to come from an area near to the Palestine Hotel used by journalists covering the war.

A US tank killed two journalists at the hotel on Tuesday, one from Reuters, the other from Spain's Telecinco television.

Even as the battle for Baghdad appeared to be in its final stages, diplomatic obstacles loomed as President George W Bush addressed the question of reconstruction in a post-Saddam Iraq.

He met his main war ally, British Prime Minister Tony Blair, on Tuesday and they endorsed a 'vital' UN role when fighting ends, although their plans may fall short of European desires.

There was no word on the fate of Saddam, targeted on Tuesday by US bombers that dropped four 2,000-pound (900-kg) bombs on a site in Baghdad.

"I don't know whether he survived," Bush told reporters. "The only thing I can tell you is ...that grip I used to describe that Saddam had around the throats of the Iraqi people is loosening. I can't tell you if all 10 fingers are off the throat but finger by finger it's coming off."

British intelligence sources said Saddam probably survived.

Residents of Iraq's second largest city Basra, which fell to British troops this week, complained of a power vacuum as armed men roamed the streets, looting and pillaging.