(Updates with U.S. statement, background, context)

By Ross Colvin

BAGHDAD, Aug 29 (Reuters) - U.S. forces said on Wednesday they had detained eight Iranians overnight and seized a suitcase full of money from their central Baghdad hotel but later freed them after consultations with the Iraqi government.

A media adviser to Iraqi Prime Minister Nuri al-Maliki, Yasin Majid, said the men had been members of an Iranian delegation invited to Iraq by the Ministry of Electricity to discuss construction of a new power plant.

The U.S. military said in a statement that U.S. troops had stopped four vehicles and detained 15 people, the Iranians and their Iraqi bodyguards, on Tuesday night. They had seized an AK-47 rifle and two pistols belonging to the Iraqis.

The Iranians had then been allowed to travel on to their hotel, the Sheraton Ishtar in the city centre, but troops had followed shortly afterwards and entered their rooms.

"While there, Coalition Forces confiscated a laptop, cellphones and a briefcase full of Iranian and U.S. money," the statement said, adding that the men were then taken to a U.S. military facility for questioning.

"The Iranian nationals had passports. It was later determined that two of the Iranian individuals were carrying diplomatic credentials. The Iranian nationals were released in consultation with the government of Iraq," the statement said.

Videotape of their arrest showed U.S. troops leading 10 men, blindfolded and handcuffed, from the hotel.

The incident comes at a time of rising tensions between the two long-time foes, with U.S. officials stepping up accusations that Iran is supplying deadly roadside bombs and other weapons to Iraqi militias to kill U.S. soldiers, a charge Iran denies.

Iran's official IRNA news agency, quoting Iran's ambassador to Iraq, said U.S. forces handed over the delegation at 7 a.m. (0300 GMT) to Maliki's office. It also said the delegation was in Iraq to sign an electricity contract.

U.S. forces have separately been holding five Iranians since January that they say were providing support to militants.

The military says the five are agents of Iran's Revolutionary Guards Qods force, but Iran insists they are diplomats and has demanded their release.

U.S. generals say Iran is seeking to influence debate on the war in Washington by boosting its support for Shi'ite militias ahead of a report on political and military progress in Iraq due to be presented to the U.S. Congress in two weeks' time.

U.S. ambassador Ryan Crocker formally outlined the U.S. accusations of Iran's meddling in Iraq during two rounds of talks with his Iranian counterpart in Baghdad in May and July.

The talks between the two countries, which have not had diplomatic relations for almost 30 years, were seen as groundbreaking and led to the formation of a committee intended to improve cooperation between the countries on Iraqi security. (Additional reporting by Waleed Ibrahim in Baghdad and Edmund Blair in Tehran)

AlertNet news is provided by