The US military said unknown attackers fired an incendiary device into an Iraqi munitions store at Zaafaraniya on the capital’s southern outskirts, triggering a series of blasts.

But local people turned their anger on the Americans, shooting at soldiers trying to help relief efforts and forcing them back from the scene for a while.

Residents said US troops had packed cars with confiscated weapons and detonated them at the site. The Americans denied this and said the location of the dump near a residential area showed Saddam Hussein’s disregard for civilians.

Anti-American protests broke out later in the capital. About 500 men, chanting anti-American, pro-Islamic slogans, drove out of Zaafaraniya in a convoy of trucks, buses and cars. One truck carried six coffins. Two banners in English read: “Stop Explosions Near Civilians” and “The Terror After War”.

Later, scores of men gathered in a central Baghdad square to protest at the US military presence in Iraq, waving their fists and chanting: “Yes, yes to Islam! Yes, yes to Iraq!”, while a religious leader with a megaphone egged on the crowd.

The incident underlined how far Baghdad is from being pacified 17 days after US troops took the city.

It was unclear how many people were killed in the blasts in Zaafaraniya, a mixed residential-industrial suburb. The main hospital in the district said at least 12 people had been killed and 40 injured, but medics said more casualties were ferried to other hospitals. US Central Command in Qatar said at least six people had died. One Iraqi medic on the scene said the blasts had killed many people. Asked how many, he replied: “Forty”.

One distraught man, Tamir Kalaal, said his wife, father, brother and 11 other relatives had been killed when a rocket shot out of the arms dump and destroyed their home.

The explosions were so loud they were heard in central Baghdad.

US troops in the city center told reporters initially that they were controlled detonations, but later the American military spoke of an attack by “an unknown number of individuals”.

“One soldier was wounded in the attack,” Central Command said in a statement. “During the attack, the assailant fired an unknown incendiary device into the cache, causing it to catch fire and explode. The explosion caused the destruction of the cache as well as a nearby building.”

But furious local residents immediately questioned this explanation, claiming that US troops had been detonating Iraqi ordnance at the camp for weeks, despite repeated requests to move it to a non-populated area.

“We have been saying to them, please do not do this. It’s only 500 meters away from our homes,” said Sami Sabah, as he sat outside the remains of his brother’s destroyed home. “The Americans did this. They stopped blowing up the ammunition four days ago and then they started again today,” said Sabah.

Meanwhile, US efforts to bring Iraqi towns and cities under control are proving patchy. The rise of self-proclaimed leaders and Islamic leaders is providing a major challenge to plans to introduce democracy and avert the establishment of a theocratic state.

Self-declared mayors have taken over in Baghdad and Kut, near the border with Iran. In Najaf in the south, Shiite groups are vying for power while in Mosul in the north, tensions have flared between Arabs and Kurds.

In other towns, villages and cities it is not clear who is in charge in the chaos following the collapse of the Saddam regime.

Jay Garner, the retired US general leading an interim administration until an Iraqi government takes charge, is calling for a government that is a “mosaic” of the different ethnic, religious and political groups in Iraq.

US Defense Secretary Donald Rumsfeld left for the Gulf yesterday to thank regional leaders for support in the war and to discuss future US military deployment in the area. US officials did not say whether he would visit Iraq.