British troops fired in the air as Iraqis, angry over fuel and power shortages, rioted in the southern port of Basra on Saturday.

Witnesses said residents hurled rocks and burned tyres in all Basra's main streets as Iraqis raged in the blistering summer heat over the tortoise-like pace of the coalition force's reconstruction efforts in Iraq's second biggest city.

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The rioting started minutes after witnesses said a grenade was hurled at a British military truck near a gasoline station, where fed-up Iraqis waited in a long line for fuel, angered by the fact they were queuing for hours in a country with the world's second largest oil reserves.

Four British armoured vehicles and three jeeps came to seal off the area, while a crowd lobbed rocks at them, a witness said.

The soldiers fired in the air to ward off the crowd and then started to shoot rubber bullets, wounding at least four Iraqis, including a child, witnesses said.

The crowd, with some women in headscarves firing off Kalashnikovs in the air, grew to more than 2,000 and shouted in anger over the gasoline shortage in the city, they added.

Major Charlie Mayo, spokesman for the coalition forces in the south, said he was not aware of any grenade attack.

But he blamed the rioting on the city's fuel shortages and a power blackout in parts of Basra, after an electricity station went down.

The riot's fuse was lit when customers turned violent at a gas station where the owner had started to charge black market prices, he said.

"They started to riot and coalition forces went in to quell the situation," Mayo explained. "One thing fed the other."

The chaos quickly spread to four other fuel stations, he said, adding the crowds attacked the British troops who tried to calm the situation.

The British military said seven of its soldiers had been injured and were hospitalised for "big bruises and some cuts".

The rioting was one of the most widespread violence seen in the mostly Shi'ite Muslim south since Saddam Hussein was toppled by US-led forces four months ago.

The Basra violence was a reminder US-led forces not only face problems among the Sunni Muslim minority in Saddam's heartlands north and west of Baghdad.

US troops face daily attacks in those areas, blaming them mainly on die-hard Saddam loyalists but saying there is evidence of foreign terrorists coming to Iraq to target Americans.

More than 50 US troops have been killed by hostile fire since US President George W Bush declared major combat in Iraq over 100 days ago on May 1.