(Recasts with fresh violence)

KERBALA, Iraq, Aug 28 (Reuters) - Four people were killed and 18 wounded in a fresh outbreak of violence in the holy Iraqi city of Kerbala, where hundreds of thousands of Shi'ite pilgrims gathered on Tuesday for a major ritual, police said.

Police said gunmen armed with automatic weapons and pistols tried to take control of the area around two revered Shi'ite shrines, the focal point of the ceremonies. They confronted the police and army who opened fire.

A Reuters photographer said he saw two bodies being carried through the streets and could hear the sounds of rocket-propelled grenades being fired near the Imam Abbas and Imam Hussein shrines.

Columns of smoke rose into the air from the city centre and U.S. warplanes prowled in the skies above, he said. Towards mid-afternoon the gunfire intensified.

Police said two mortar bombs also crashed onto the city, but it was not immediately clear whether anyone had been wounded.

The violence follows clashes between police and pilgrims on Monday night in which at least six people were killed on the eve of one of the holiest events on the Shi'ite calendar.

"I am hiding in a shop. I can hear the sound of gunshots. The situation is very unstable and the Iraqi army and police commandos have been deployed on the streets and on rooftops," said one pilgrim who asked not to be named.

Pilgrims are celebrating the 9th century birth of Mohammad al-Mahdi, the last of 12 imams Shi'ites revere as saints and who they believe never died and will return to save mankind.

Iraq's security forces are on heightened alert during the two-day celebrations, fearing that Sunni Islamist al Qaeda will try to launch a large-scale attack on civilians.

Shi'ite pilgrimages have been a target of bombers and have also served as rallying events for the Shi'ite majority, now running Iraq after decades under Saddam Hussein, a Sunni Arab.

An Interior Ministry official in Baghdad said six people had been killed and 30 wounded in the clashes on Tuesday. Police said one of those killed in the latest violence was a woman.

The area between the two shrines in the centre of the city had been cleared of pilgrims, they said.

WATERSHED REPORT

U.S. officials fear al Qaeda and other militants want to inflame tensions in Iraq to influence a pivotal report to be presented to the U.S. Congress in two weeks' time.

The U.S. commander in Iraq, General David Petraeus, and U.S. Ambassador Ryan Crocker will deliver testimony on Iraq's security and political situation that could prompt a shift in President George W. Bush's Iraq policy.

Opposition Democrats and some senior Republicans have called for U.S. troops to start leaving Iraq after more than four years of war that has killed 3,700 U.S. soldiers and tens of thousands of Iraqis.

But Iraq's deputy prime minister, Barham Salih, warned that an early pullout would trigger a full-scale civil war.

"A premature withdrawal of troops from Iraq will be a disaster, not only for Iraq, but for the region and the international community as a whole," Salih said in an interview with Reuters late on Monday.

"It will lead to an all-out civil war, it will lead to a regional war in my opinion because the fate of Iraq is crucial to the regional balance and to regional security."

Police in Kerbala said they opened fire on Monday night on a large crowd of pilgrims infuriated by strict security measures that had created lengthy queues. The shots were fired after the pilgrims began pelting police and their cars with stones and other objects, police said.

Six people were killed in the violence, they said.

Kadhim Mohammed, a media official in the local office of fiery Shi'ite cleric Moqtada al-Sadr, who is a powerful political force in the city, said he had counted eight bodies and 40 wounded at a hospital in the city.

He said four of the dead were Sadr supporters.

Some 10,000 police officers and 5,000 Iraqi soldiers had been deployed in the city.

Apart from rare car bombings, Kerbala is one of Iraq's most stable cities. It lies 110 km (68 miles) south of Baghdad.

(Additional reporting by Dean Yates in Baghdad)

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