BAGHDAD, (Reuters) – Iraqi security forces besieged a Baghdad district on Sunday after Sunni neighbourhood patrolmen angry at the arrest of their leader clashed with police and troops in a gunfight that killed three people.

The shootout on Saturday between government forces and the guards, many of them former insurgents who switched sides and joined the U.S. military to fight al Qaeda, took place after the arrest of Adil al-Mashhadani, and at least one of his men.

The fighters’ relations with the Shi’ite Muslim-led government have been strained and many have feared they will be targeted for their insurgent past.

Iraqi soldiers using loudspeakers warned the fighters in the central Baghdad district of al-Fadhil on Sunday to put down their weapons by noon (0900 GMT) or they would be arrested, said one of the patrolmen, who identified himself as Abu Sajad.

A Reuters Television cameraman saw U.S. military vehicles alongside Iraqi army ones also issuing that message through loudspeakers in Arabic.

The Awakening Councils — “Majalis al-Sahwa” in Arabic — are units led mostly by Sunni Arab sheikhs and include many former insurgents who rose up against al Qaeda in 2006. They were quickly recruited by the U.S. military to man checkpoints and raid houses in an effort to contain a raging insurgency unleashed by the 2003 U.S. invasion. They have been credited with drastically cutting violence after they switched sides, routing the Sunni Islamist group from parts of Baghdad, western Anbar province and some northern towns. But deep mistrust remains between the guards and the Shi’ite-led government.

Mashhadani was wanted on terrorism charges, security officials said.

Three civilians were killed in Saturday’s gunbattle, 15 people were wounded, and the Sunni Arab fighters took five Iraqi soldiers hostage. There were conflicting reports about whether or not the hostages had already been released or were still being held.

Baghdad security spokesman Qassim al Moussawi said Baghdad forces were now sweeping the area. “People in the Fadhil district are responding to the call … to hand over their weapons voluntarily,” he said.

Security forces said U.S. officials had been involved in talks between Iraqi forces and the fighters. The U.S. military did not immediately comment.

“A force of the army division 11, along with the national police, has surrounded all al-Fadhil district with the intention of taking control of it,” said Khalid al-Qaisi, the spokesman of the Sunni Arab “Awakening Council” unit.

A local official who declined to be named because he feared reprisals from the Iraqi army said U.S. troops and Iraqi forces had surrounded the entire area. “We are in prison. We can’t get out, we can’t get in. Families are trying to leave and the Iraqi army is arresting the men of these families,” he said.

How the government handles the guards it once fought is seen as a major test of reconciliation after years of sectarian slaughter between Sunnis and Shi’ites, especially as the United States prepares to pull combat troops out by Aug. 31, 2010.