Iraqi supporters of powerful cleric Muqtada al-Sadr on Tuesday began withdrawing from capital Baghdad's Green Zone after he demanded fighting to end between rival Shiite forces and the army that left at least 30 dead and hundreds wounded.

The violence that erupted on Monday pitched al-Sadr loyalists against Shiite factions backed by neighboring Iran, with the sides exchanging gunfire across barricades -- violence the United Nations warned risked tipping the war-ravaged country deeper into chaos.

Moments after Sadr's speech was broadcast live on television, his supporters were seen beginning to leave the Green Zone, and minutes after that, the army lifted a nationwide curfew.

Sadr, a grey-bearded preacher with millions of devoted followers who once led a militia against American and Iraqi government forces after the 2003 U.S.-led overthrow of dictator Saddam Hussein, gave followers "60 minutes" to withdraw, after which he threatened to "disavow" those who remained.

"I apologize to the Iraqi people, the only ones affected by the events," Sadr told reporters from his base in the central Iraqi city of Najaf.

Tensions have soared in Iraq amid a political crisis that has left the country without a new government, prime minister or president for months.

They escalated sharply after Sadr's supporters on Monday afternoon stormed the government palace inside the high-security Green Zone following their leader's announcement that he was quitting politics.

'Dangerous escalation'

Overnight, shelling targeted the Green Zone that houses government buildings and diplomatic missions, amid angry protests after Sadr's surprised many by announcing his "definitive retirement."

Clashes continued on Tuesday morning -- with the rattle of automatic gunfire and heavier explosions of rocket-propelled grenades -- as Sadr's supporters and the army and men of the Hashed al-Shaabi, former Tehran-backed paramilitaries integrated into the Iraqi forces.

The U.N. mission in Iraq warned of "an extremely dangerous escalation" and called on all sides to "refrain from acts that could lead to an unstoppable chain of events."

"The very survival of the state is at stake," it warned.

A mass funeral was held Tuesday in the Shiite holy city of Najaf for some of the protesters killed in Baghdad.

Witnesses said earlier that Sadr loyalists and supporters of a rival Shiite bloc, the pro-Iran Coordination Framework, had exchanged fire.

The Framework condemned an "attack on state institutions," urging the Sadrists to engage in dialogue.

Caretaker Prime Minister Mustafa al-Kadhemi said "security or military forces, or armed men" were prohibited from opening fire on protesters.

'Disturbing'

The United States also urged calm amid the "disturbing" reports, while France called on "the parties to exercise the utmost restraint".

Shortly after Sadr made his announcement to step down, his followers burst into the Republican Palace in Baghdad – where cabinet meetings are usually held.

Sadr – a longtime player in the war-torn country's political scene, though he himself has never directly been in government -- announced he was quitting politics two days after he said, "all parties," including his own, should give up government positions in order to help resolve the political crisis.

His bloc emerged from last year's election as the biggest in the legislature, with 73 seats, but short of a majority.

In June, his lawmakers quit in a bid to break the logjam, which led to the Coordination Framework becoming the largest bloc.

Iraq has been mired in political deadlock since legislative elections in October last year due to disagreement between Shiite factions over forming a coalition.

Sadr's supporters have for weeks been staging a sit-in outside Iraq's parliament, after storming the legislature's interior on July 30, demanding fresh elections be held.

The Coordination Framework wants a new head of government to be appointed before any new polls are held.