* Local officials outraged over U.S. raid

* Dead man was distant relative of prime minister

* U.S. military expresses regret, promises investigation

By Dean Yates

BAGHDAD, June 29 (Reuters) - The U.S. military faced Iraqi anger on Sunday over a raid near the holy Shi'ite city of Kerbala in which a distant relative of Prime Minister Nuri al-Maliki was killed.

Iraqi leaders in Kerbala said the pre-dawn raid on Friday should have been approved by local authorities since security for the area was handed to Iraqi forces last year.

Colonel Jerry O'Hara, a U.S. military spokesman, said the incident was under investigation.

"Coalition forces deeply regret the loss of life and are conducting an investigation," he said.

The raid comes at a sensitive time for Washington, which is negotiating a new security pact with Baghdad to provide a legal basis for American troops to stay in Iraq after a United Nations mandate expires on Dec. 31.

One of the main sticking points in negotiations has been whether the U.S. military could conduct operations and detain suspects without Iraqi approval.

"This action was barbaric and a violation of Iraqi sovereignty. ... Iraqi forces in the local government were not aware of it," Aqeel al-Khazali, the governor of Kerbala province, told a news conference on Saturday.

Provincial police chief Major-General Raad Shakir said U.S. helicopters landed in the al-Hindiya district, just east of the southern city of Kerbala, during the raid. One person was killed and another detained, he said.

A senior official who declined to be identified said the dead man was a distant relative of Maliki. The prime minister comes from the al-Hindiya district.

Sadeq al-Rikabi, Maliki's political adviser, said the dead man had heard movement outside his house and came out with a gun to investigate. U.S. troops shot him dead, Rikabi said.

O'Hara said U.S. forces were on an operation targeting rogue Shi'ite militias when a man came out of a building with an AK-47 rifle against his shoulder as if to fire.

The man was shot and killed after troops acted in self-defence, he said. It was later determined the man was a local security guard, added O'Hara.

IRAQ TO TAKE SECURITY CONTROL IN QADISIYA

The U.S. military handed security control of Kerbala province to Iraq in October. It is one of nine of Iraq's 18 provinces where Iraqi forces are now responsible for security.

Officials said Iraq would take control of security in another southern Shi'ite province, Qadisiya, on Monday.

The head of the Qadisiya provincial council security committee, Hussain al-Budairi, said a curfew would be imposed from this evening ahead of the handover ceremony.

The U.S. military is also expected to transfer security in Sunni Arab Anbar province in the coming week. That handover was supposed to take place on Saturday, but was delayed because forecast bad weather would have prevented officials flying in.

Anbar will be the first Sunni Arab province to come under Iraqi security control. All others have been Shi'ite or Kurdish.

The new security pact being negotiated by Iraqi and U.S. officials has come under intense scrutiny.

Maliki said on June 13 that talks on the agreement were deadlocked, partly because Baghdad objected to giving U.S. forces freedom to detain Iraqis or to conduct operations independent of Iraqi control.

Since then, officials say Washington has agreed to set up joint bodies to vet planned U.S. security operations.

A week after his criticism of the negotiations, Maliki and President George W. Bush spoke via a video conference call and the White House said the two agreed talks were proceeding well.

Besides the security pact, the two countries are negotiating a long-term agreement on political, economic and security ties.

In other violence, a suicide car bomber killed seven policemen and wounded three in an attack on a patrol in northern Iraq's Salahuddin province, police said. The explosion took place in Dhuluiya, 70 km (45 miles) north of Baghdad. For a factbox on security developments, click [nL29702177] (Additional reporting by Sami al-Jumaili in Kerbala and Wisam Mohammed and Tim Cocks in Baghdad, Editing by Mary Gabriel)

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