* Sadr orders his followers off the streets

* Iraqi government welcomes Sadr's announcement

* U.S.-British coalition drawn deeper into the conflict

(Adds government welcomes statement)

By Khaled Farhan

NAJAF, Iraq March 30 (Reuters) - Iraqi Shi'ite cleric Moqtada al-Sadr called on his followers on Sunday to stop battling government forces after six days of fighting in Iraq's south and the capital threatened to spiral out of control.

The government immediately welcomed Sadr's statement, saying it would help the authorities impose security in Iraq.

A government crackdown on Sadr's followers in the southern oil port of Basra has sparked an explosion of violence that risks undoing recent improvements in Iraq's fragile security and jeopardising U.S. plans to withdraw troops.

"Because of the religious responsibility, and to stop Iraqi blood being shed ... we call for an end to armed appearances in Basra and all other provinces," Sadr said in a statement given to journalists by his aides in the holy Shi'ite city of Najaf.

"Anyone carrying a weapon and targeting government institutions will not be one of us," the statement said.

Sadr also called on the government to stop "random illegal arrests" of his followers and to implement an amnesty law passed by Iraq's parliament in February to free prisoners.

Prime Minister Nuri al-Maliki has ordered Shi'ite fighters in Basra to lay down their arms and has extended a 72-hour deadline until April 8 for them to turn over heavy and medium weapons. Mehdi Army fighters in the city had rejected the ultimatum.

"This is a positive statement," Maliki's spokesman Ali al-Dabbagh told Iraqiya state television. "As the government of Iraq we welcome this statement. We believe this will support the government of Iraq's efforts to impose security."

Maliki launched the military operation last Tuesday, vowing to reassert his government's control over Iraq's second city, which is dominated by various militias. So far only strongholds of Sadr's followers have been targeted.

The operation has sparked a furious backlash from Sadr's Mehdi Army militia, who believe Maliki and the Supreme Islamic Iraqi Council, his most powerful Shi'ite ally, are trying to crush them ahead of provincial elections due in October.

U.S. President George W. Bush has lauded the operation in Basra as Iraqi-led and planned, but there are signs that the U.S.-British coalition is being drawn deeper into the conflict.

U.S. special forces are operating in Basra alongside Iraqi troops, the U.S. military confirmed on Sunday.

(Additional reporting by Waleed Ibrahim in Baghdad; Writing by Ross Colvin and Peter Graff; Editing by Samia Nakhoul)

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