(Updates with Maliki protesting to Petraeus over raid)

By Sattar Raheem and Aseel Kami

BAGHDAD, Oct 21 (Reuters) - The Iraqi government protested against a raid by U.S. forces in Baghdad on Sunday in which the military said 49 gunmen were killed in fierce fighting, but police and witnesses said claimed the lives of many civilians.

The fighting erupted during an operation in Sadr City, the main stronghold of anti-American Shi'ite cleric Moqtada, to capture an Iranian-linked militant suspected of abducting U.S.-led coalition soldiers and other foreigners.

Iraqi police said 13 civilians were killed and 69 wounded in the clashes, in which the U.S. military said troops backed by attack helicopters battled militants armed with rocket-propelled grenade launchers and machineguns.

Two of the victims were toddlers, Reuters Television pictures showed.

The U.S. military said it had no confirmation of any civilian casualties.

Prime Minister Nuri al-Maliki protested about the "excessive force" against civilians in the Sadr City raid in his weekly meeting with General David Petraeus, the U.S. commander Iraq, government spokesman Ali al-Dabbagh said in an interview with CNN's Late Edition.

Iraqi officials have criticised the U.S. military in the past for operations that have resulted in the loss of civilian life, especially the use of air strikes in built-up areas.

Petraeus's spokesman, Colonel Steve Boylan, said it had been agreed to establish a committee that would consist of Iraqi cabinet officials and U.S. general officers to "review the case and to refine mechanisms for the future".

BLACK SMOKE

Clouds of black smoke rose from Sadr City, a sprawling slum of some 2 million people in northern Baghdad, as sirens wailed, heavy gunfire echoed and U.S. attack helicopters circled above.

A U.S. military official said the target of the raid was suspected of involvement in the kidnapping of "coalition force members and other foreigners" in May this year and last November. The official did not say whether he had been captured.

A U.S. army translator was kidnapped last October, and in May three U.S. soldiers and five Britons -- four security contractors and a civilian -- were abducted in two incidents.

"The operation's objective was an individual reported to be a long-time Special Groups member specialising in kidnapping operations. Intelligence indicates he ... has previously sought funding from Iran," the U.S. military said in a statement.

Special Groups is U.S. military jargon for rogue Mehdi Army units they say receive funding, training and weapons from neighbouring Iran.

The U.S. military said its soldiers came under heavy machinegun and rocket-propelled-grenade fire from neighbouring buildings at the start of the raid. Troops returned fire, killing 33. Six more gunmen were killed in air strikes.

As the raiding party began withdrawing from the area, they continued to come under fire and were struck by a roadside bomb. The military said soldiers shot back, killing 10 gunmen.

"Ground forces reported they were unaware of any innocent civilians being killed as a result of this operation," the military said.

BLOOD-STAINED MATTRESSES

Local hospitals said they had received 12 bodies and 65 wounded, including eight women and children.

The bodies of the two slain toddlers, one in a diaper, lay on blankets in the morgue of Imam Ali hospital in Sadr City, where doctors tended to wounded men, some elderly, and boys, Reuters Television footage showed.

In a house where one of the children lived, a man pointed to bloodstained mattresses and blood-splattered pillows, choking back tears as he held up a photo of one of the dead.

Hundreds of local residents, wailing and chanting "There is no God but Allah", carried wooden coffins through the streets.

The military gave few details about the high-profile abductions linked to the kidnap cell leader but said they took place this May and last November.

Three U.S. soldiers were kidnapped in an al Qaeda stronghold south of Baghdad in May. The body of one was found later that month but the other two are classed as missing and captured. Al Qaeda has claimed responsibility for the abductions.

The same month, five Britons were abducted from a Finance Ministry building in the Iraqi capital by gunmen wearing police uniforms in an attack blamed on Mehdi Army militants.

A U.S. army translator of Iraqi descent, was kidnapped in Baghdad on Oct. 23 last year when he went to visit relatives. His family said he was taken by the members of the Mehdi Army.

Moqtada al-Sadr froze the activities of the Mehdi Army at the end of August for six months after 52 were killed in gun battles between rival Shi'ite militias in the city of Kerbala. (Additional reporting by Mussab Al-Khairalla, Wisam Mohammed and Ross Colvin)

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