Hay Al Ansar, on the outskirts of Najaf in Iraq, was glad to be rid of Saddam Hussein's Ba'ath party government, when the city was seized by US forces last week.

But they appear to be just as terrified, if not more so, of their new rulers - a little-known Iraqi militia backed by the US special forces and headquartered in a compound nearby.

The Iraqi Coalition of National Unity (ICNU), which appeared in the city last week riding on US special forces vehicles, has taken to looting and terrorising their neighbourhood with impunity, according to most residents.

"They steal and steal," said a man living near the Medresa al Tayif school, calling himself Abu Zeinab. "They threaten us, saying: 'We are with the Americans, you can do nothing to us'."

Sa'ida al Hamed, another resident, said she witnessed looting by the ICNU and other armed gangs in the city, which lost its police force when the government fled last week. One man told a US army translator on Monday that he was taken out of his house and beaten by ICNU forces when he refused to give them his car. They took it anyway.

If true, the testimony of residents reveals a darker side to US policy in Iraq. In their distaste for peacekeeping and eagerness to hand the ruling of Iraq back to Iraqis, US forces are in danger of losing the peace as rapidly as they have won the war.

US special forces said they were looking into the complaints, which had been passed to them by US military sources. They declined, however, to discuss the formation of the group, how its members were chosen, or who they were.

The head of the ICNU, who says he is a former colonel in the Iraqi artillery forces who has been working with the underground opposition since 1996, announced on Tuesday that he was acting mayor of Najaf, and his group had taken over administration of the city.

Other Iraqi exiles, brought in by the CIA and US special forces to help assemble a local government over the next few days, say the militia is out of control.

"They are nobody, and nobody has ever heard of them, all they have is US backing," said an Arab journalist.

Abu Zeinab said the ICNU "has no basis in this city, we don't know who they are". He said the residents, who are predominantly Shia Muslims, followed only Grand Ayatollah Ali Sistani, leader of much of the Shia world, who lives in the city.

Ayatollah Sistani has so far refused to meet representatives of US forces and has made no public pronouncements on co-operating with the US military. Associates say he is "waiting for the situation to become clearer".

Hassan Mussawi, a Shia cleric who helps lead the ICNU, said reports of looting by his group were untrue - fabricated by religious extremists to discredit his movement.

He said his group was seeking to arrest former Iraqi government officials and "collaborators" with Mr Hussein's regime.

"If they do not resist arrest we hand them over to the Americans. If they resist then we take measures accordingly."

The allegations against the ICNU threaten to undermine much of the goodwill built up by US forces among the citizens of Najaf, who still cheer troops driving through the city. In an effort to curb rampant looting, US forces have begun to patrol at night.

They will not be undertaking police functions, but "if we come upon looting, we will try to control the situation and disperse those doing the looting," said Lt Col Marcus De Oliveira, of the 101st Airborne Division.

The city's political rivalries appear to be affecting humanitarian assistance. US special forces have objected to certain Shia leaders distributing food aid, for fear of their ties to Iran.

Sixteen truckloads of food from the Kuwait Red Crescent Society is being distributed according to a ration plan drawn up by the Iraqi Ministry of Commerce for the United Nation's oil for food programme.

US forces are also trying to get running water and power returned to the city, by bringing in a 2.5MW generator from Kuwait to restart the city's power plant, which was shut off by Iraqi forces.

Hussein Chilabi, father of a family of six in Chilabat, on the outskirts of Najaf, said that until running water was restored, his family would have to drink from canals. "The children are sick in their stomachs from drinking this water. We need running water more than food, more than anything right now."