BAGHDAD (Reuters) - Iraq's ruling parties demanded U.S. forces cede control of security on Monday as the government launched an inquiry into a raid on a Shi'ite mosque that ministers said saw "cold blooded" killings by U.S.-led troops.

As Shi'ite militiamen fulminated over Sunday's deaths of 20 or more people in Baghdad, an al Qaeda-led group said it carried out one of the bloodiest Sunni insurgent attacks in months. A suicide bomber killed 40 Iraqi army recruits in northern Iraq.

The Iraqi Defence Ministry said a suicide bomber wearing an explosive belt also wounded 30 at a base near Mosul.

After a confusing 24 hours following the bloodshed around Baghdad's Mustafa mosque in which the U.S. military restricted itself to issuing one somewhat opaque statement, U.S. officials distanced themselves from the operation, calling it Iraqi-led.

Officials in Baghdad appeared to wait for input from Washington, underlining the sensitivity of the confrontation between Iraq's Iranian-linked Shi'ite Islamist leaders and the U.S. forces at a time when Washington is pressing them to forge a unity government with minority Sunnis to avert civil war.

A day later, three broad versions of the events that led to the deaths of some 20 -- or possibly more -- people persisted.

Iraq's security minister accused U.S. and Iraqi forces of killing 37 unarmed civilians in the mosque after tying them up.

Residents and police, who put the death toll among the troops' opponents at around 20, spoke of a fierce battle between the soldiers and gunmen from the Mehdi Army militia of Shi'ite cleric Moqtada al-Sadr, whose followers ran the mosque.

And U.S. officials, finally confirming they were describing the same incident, stuck by a statement saying Iraqi special forces, advised by U.S. troops, killed 16 "insurgents" who fired on them first. They also insisted no troops entered any mosque and had freed an Iraqi being held prisoner.

CONFUSION

Several Iraqi officials said the raid may have targeted a site used by militiamen to hold illegal courts and executions, part of efforts to impose Islamic law in parts of Baghdad.

One source of confusion over the site may be that the mosque in question, close to Sadr's Sadr City stronghold in northeast Baghdad, was not a traditional religious building but a compound of former Baath party offices converted by Sadr followers.

A State Department official said in Washington: "This was an Iraqi planned and led operation and U.S. forces were only in an advisory capacity."

While U.S. officials refused to acknowledge that the targets of the operation were Shi'ites, and the sectarian affiliations of the Iraqi troops involved was unclear, the State Department official said the incident underlined what he called the need for Iraq's security forces to be free of sectarian bias.

One thing was certain: Shi'ite leaders were up in arms against the U.S. forces who effectively brought them to power by overthrowing Saddam Hussein's Sunni-dominated Baathist regime.

"The Alliance calls for a rapid restoration of (control of) security matters to the Iraqi government," Jawad al-Maliki, a senior spokesman of the Shi'ite Islamist Alliance and ally of Prime Minister Ibrahim al-Jaafari, told a news conference.

The United States handed over formal sovereignty in 2004 but 133,000 troops in the country give it the main say in security.

Government-run television repeated lengthy footage of the bodies of men in civilian clothes with no weapons in sight.

Baghdad provincial governor Hussein al-Tahan said he would halt all cooperation with U.S. forces.

Aides to Sadr denied any Mehdi Army fighters were present.

But witnesses spoke of a lengthy gun battle: "The shooting lasted for more than an hour," shopkeeper Ali Abdul Jabbar said.

SADR

The fiery young cleric's militia was ordered to disband after U.S. forces crushed uprisings in 2004. But it remains a force in southern Iraq and eastern Baghdad, and is accused by U.S. officials of some of the violence that killed hundreds of Sunnis after last month's bombing of a Shi'ite shrine.

Ambassador Zalmay Khalilzad, at the centre of urgent U.S. efforts to stem violence by creating a unity government, has said in recent days that the militias must be brought to heel and accused Iran of funding and training some armed groups. He said militias are now killing more Iraqis than the insurgents.

Khalilzad plans ground-breaking talks with Iran to try to break the deadlock over the formation of a unity government.

Iranian backing seems to have been critical in pushing Sadr to kingmaker status within the Alliance and to securing the nomination of Dawa party leader Jaafari to a second term. Sunni and Kurdish opposition to Jaafari is blocking a government deal.

Alliance leaders stayed away from the daily round of talks on the government, saying the mosque incident kept them busy.

President Jalal Talabani, a Kurd, who has been hosting the negotiations said: "We have to know the truth about what happened, and we must not be driven by rumours. This is a very dangerous incident which we must investigate."

(Additional reporting by Alastair Macdonald, Michael Georgy, Mariam Karouny, Terry Friel, Hiba Moussa and Aseel Kami)

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