Two men lie on the road shortly after they were shot by gunmen in Baghdad July 9, 2006. Gunmen shot dead eight people at fake checkpoints in Baghdad's Sunni Jihad district on Sunday, close to a Shi'ite mosque where a car bomb killed three people on Saturday night, police said. [Reuters]

Up to 40 people, including women and children, were killed on Sunday when Shi'ite gunmen went on a rampage against residents in predominantly Sunni districts of Baghdad, Interior Ministry and police sources said.

It was the worst outbreak of sectarian violence to date in the capital, which has seen hundreds of bodies dumped in the streets over past months amid worsening communal bloodshed.

Baghdad's Yarmuk hospital said it had received at least 17 bodies. The Interior Ministry said it had transferred 20 bodies to the hospital.

"Gunmen are killing Sunni civilians according to their identity cards," an Interior Ministry source told Reuters.

Residents said it appeared the killings were in retaliation for the bombing of a Shi'ite mosque in Sunni Jihad district on Saturday night in which at least three people were killed and 19 wounded.

The Interior Ministry initially reported that gunmen had shot dead eight people at fake checkpoints close to the mosque.

U.S. and Iraqi troops have sealed off the district, police said, and US helicopters could be seen circling overhead. The US military said it was checking the report.

Reuters witnesses in the area heard shooting and then saw the bodies of four men lying on the side of a road. All were bound and several blindfolded, a typical trademark of the sectarian violence that has pushed Iraq towards all-out civil war.

A number of Shi'ite and Sunni mosques have been hit in tit- for-tat attacks in the past three days.