Iraqi Prime Minister Ibrahim Jaafari was to hold talks in London, where public concern has been on the rise over Britain's deployment in southern
Iraq.

"We condemn the illegal acts of British troops," read a banner carried by the demonstrators, who numbered around 300, gathered outside Basra's main police headquarters.

"No, no to the occupier," they chanted, carrying banners which called for the return of the two soldiers to face Iraqi justice, while British troops who patrol the port city kept out of sight.

US-led coalition troops are not subject to Iraqi law.

The demonstrators handed in a list of demands to the police headquarters, including the resignation of the provincial police chief, accusing him of being "an agent" of the British.

"The British promised us sovereignty. So where is this sovereignty if they destroy a police station?" asked one demonstrator.

The demonstration ended peacefully after their demands were delivered for British troops to hand back the two soldiers to be tried in an Iraqi court, along with compensation for the damaged police station.

British forces on Monday stormed the station to free the two soldiers, who were arrested by police after a shooting incident in the town.

The two bearded men had apparently been working undercover as they were wearing Arab clothing and driving a civilian car at the time of arrest.

The storming of the police station followed a riot in which demonstrators firebombed two British armoured cars.

After ramming their way into the police station, British troops found the two soldiers had been spirited away by Shiite militiamen and taken to a safe house. A second raid was then mounted on the house and the soldiers released.

Both the British and Iraqi governments have tried to play down the incident.

According to Iraqi MP Ali Dabagh, Shiite militiamen from the outlawed Medhi Army of firebrand cleric Moqtada Sadr wanted to hold the soldiers hostage and exchange them for two of their leaders arrested Sunday by British forces.

Britain Defence Secretary John Reid was due to hold talks later Wednesday with Jaafari, the British defence ministry said, that were likely to focus on the events in Basra.

With British newspapers reflecting public disquiet over the dangers faced by Britain's troops in Iraq, Reid has said the troops would remain as long "as they are needed and requested by the Iraqis".

US Defense Secretary Donald Rumsfeld appeared to blame
Iran for the incident when he called on its Shiite-led government not to overplay its hand in southern Iraq.

The Iranians "are interested, they are involved and they are active. And it's not helpful", Rumsfeld told a
Pentagon press conference.

Iran insisted Wednesday it had no hand in the fresh violence in southern Iraq and dismissed as "baseless and fictitious" Rumsfeld's allegations.

"The news published recently is baseless and fictitious, and it is circulating to cover up occupying forces' inability to provide security in Iraq," foreign ministry spokesman Hamid Reza Asefi told state news agency IRNA.

In other developments, two Iraqi journalists working for the national newspaper As-Safeer were shot dead also over the past few days in the northern city of Mosul, the chief editor said Wednesday.

Firas Maadidi, head of Al-Safeer's Mosul office, was shot dead Tuesday evening, while Hind Ismaeel was found shot dead Sunday after she was kidnapped on Friday, Hussein Juburi told AFP.

And two Iraqi police commandos were killed and two wounded when their patrol came under machine-gun fire in northern Baghdad.

A charred, beheaded body was found in eastern Baghdad, police said.