(Updates with more testimony, other details)

By Dan Whitcomb

CAMP PENDLETON, Calif., Aug 31 (Reuters) - The U.S. Marine sergeant accused of leading a 2005 massacre of Iraqi civilians in Haditha gunned down five unarmed men who were standing next to a car after a roadside bombing, a Marine from his squad told a military court on Friday.

Sgt. Sanick Dela Cruz also testified that, about a week before the incident at Haditha, another bombing prompted Staff Sgt. Frank Wuterich to say the squad should "kill everybody in the vicinity" if they were hit again.

Dela Cruz took the witness stand against his former squad leader at a hearing to determine if Wuterich, 27, should face court-martial over the Nov. 19, 2005, events at Haditha.

Iraqi witnesses say U.S. troops massacred two dozen unarmed men, women and children at Haditha in retaliation for the death of Lance Cpl. Miguel "T.J." Terrazas in the roadside bomb. Defense lawyers say the civilians died during a chaotic house-to-house battle in the western Iraqi town.

The hearing into Wuterich's conduct was expected to last several more days.

Dela Cruz, granted immunity from prosecution in the case after murder charges against him were dismissed in April, told the court that after the bomb exploded under a Humvee in their four-vehicle convoy he saw the five Iraqi men standing near a white car across the street.

In a matter of seconds one of the men dropped dead on the ground, Dela Cruz said, and he looked around to see Wuterich kneeling and firing on the group. By the time he reached the white car, Dela Cruz said, all of the Iraqis had been killed.

'KILL EVERYBODY'

"They were in a pile, sir, laying dead, sir," said Dela Cruz, whose right forearm is tattooed with the Grim Reaper and his left with the Marine eagle, globe and anchor emblem.

Dela Cruz said he then opened fire on the men "to make sure" they were dead and Wuterich walked among the bodies, firing shots into each.

Later that day, he said, Wuterich told him to lie about the incident, an agreement he said the two Marines kept for several months. "He told me, if anybody asks ... they were running away and Iraqi Army shot them," Dela Cruz said.

On cross-examination by a lawyer for Wuterich, Dela Cruz admitted giving a different version of events to military investigators, saying he had lied to protect himself and his squad.

As defense attorneys sought to weaken his credibility, the 27-year-old Marine also admitted to urinating on the skull of one of the dead Iraqi men because he was upset about Terrazas' death.

In earlier testimony, Dela Cruz told the court Terrazas died about a week after another Marine in the squad had been injured by a roadside bomb, an incident that had upset Wuterich.

"Staff Sgt. Wuterich, he made a comment about how if we ever get hit again we should kill everybody in the vicinity sir, the area, to teach them a lesson," Dela Cruz said.

Military authorities have dismissed charges against two Marines, Lance Cpl. Justin Sharratt and Capt. Randy Stone, citing battle conditions against a "shadowy" insurgent enemy.

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