* U.S. forces launch air strikes in Basra
* Heavy clashes in Baghdad
* Iraqi PM extends surrender deadline to militants
* Mehdi Army commander says to fight on
(Adds Mehdi Army commander quotes, Bush, Talabani, Zebari)
By Aref Mohammed
BASRA, Iraq, March 28 (Reuters) - U.S. forces were drawn deeper into Iraq's four-day-old crackdown on Shi'ite militants on Friday, launching air strikes in Basra for the first time and battling militants in Baghdad in heavy clashes.
The fighting has exposed a rift within the majority Shi'ite community and put pressure on Prime Minister Nuri al-Maliki, whose forces have failed to drive fighters loyal to cleric Moqtada al-Sadr off the streets.
Authorities shut down Baghdad with a strict curfew, but that did not halt rocket attacks and clashes in the capital.
U.S. helicopters repeatedly fired into Baghdad's Sadr City slum and other Shi'ite areas where fighters are holed up.
"There have been engagements going on in and around Sadr City. We've engaged the enemy with artillery, we've engaged the enemy with aircraft, we've engaged the enemy with direct fire," said Major Mark Cheadle, a spokesman for U.S. forces in Baghdad.
In Iraq's second-biggest city Basra where he launched the crackdown on Tuesday, Maliki extended a 72 hours deadline he had given militants to surrender, saying they had until April 8 to turn in their weapons for cash.
But Sadr's Mehdi Army fighters remained defiant.
"We will fight on and never give up our weapons," Mehdi Army deputy military commander in Basra Abu Hassan al-Daraji told Reuters by telephone. "We will not turn over a single bullet."
Defence Minister Abdel Qader Jassim said his forces in Basra had been caught off-guard by their foes.
"We supposed that this operation would be a normal operation, but we were surprised by this resistance and have been obliged to change our plans and our tactics," he told a news conference in Basra. In a sign of the worsening situation, reporters were brought to the briefing in military vehicles and kept inside for hours afterwards as fighting raged nearby.
Parliament called an emergency meeting, but just 54 members of the 275-seat body attended the session inside the fortified "Green Zone" government and diplomatic compound, which was bombarded by rockets as they gathered.
One missile hit the Green Zone office of Vice President Tareq al-Hashemi, killing a security guard. The U.S. embassy ordered staff in the zone to stay under cover where possible and wear body armour and helmets when in the open.
The government says it is fighting "outlaws", but Sadr's followers say political parties in Maliki's Shi'ite-led government are using military force to marginalise their rivals ahead of local elections due by October.
GUNMEN HOLD STREETS
Reuters television footage from Basra showed masked gunmen from Sadr's Mehdi Army still in control of the streets, openly carrying rocket launchers and machine guns.
The Iraqi ground commander in Basra, Major-General Ali Zaidan, told Reuters his forces had killed 120 "enemy" fighters and wounded around 450 since the campaign began on Tuesday.
A British military spokesman said U.S. warplanes opened fire in Basra for the first time, dropping bombs under guidance of U.S. or British controllers operating with Iraqis on the ground.
British ground troops who patrolled Basra until December have so far remained on a base outside the city.
The fighting has trapped Basra residents in their homes, raising fears of a humanitarian crisis. The United Nations said it was standing by with blood bags, trauma kits, 200 tonnes of emergency food and 39 million water purification tablets.
The clashes have all but wrecked a truce Sadr declared last year, which Washington had said helped curb violence.
Sadr, who helped install Maliki in power after an election in 2005 but later broke with him, has called for talks. But Maliki has vowed to battle on with no negotiations.
President Jalal Talabani called for a summit of political party leaders to resolve the standoff.
Iraqi Foreign Minister Hoshiyar Zebari, in Damascus to attend an Arab summit, said: "It was a long overdue confrontation in my view and the government has taken a decision to defeat them and it is irreversible."
U.S. President George W. Bush said the clashes were a sign that Maliki's government was willing to confront "criminal elements or people who think they can live outside the law."
A Reuters witness said Mehdi Army gunmen had seized control of the southern city of Nassiriya. A hospital source said 15 people had been killed and 50 wounded in clashes in the town.
Mehdi Army fighters have also held territory or fought with authorities in Kut, Hilla, Amara, Kerbala, Diwaniya and other towns throughout the Shi'ite south over the past several days.
In Baghdad there have been clashes in at least 13 mainly Shi'ite neighbourhoods, especially Sadr City, the vast slum named for the cleric's slain father and his main power base.
Maliki's office said the prime minister had issued orders to his commanders to pursue fighters in the capital with "no mercy", to hold no negotiations with "criminal groups", and treat anyone who violates the curfew as an outlaw.
In one strike before dawn, a U.S. helicopter fired a hellfire missile at gunmen firing from the roof of a building, killing four of them, Cheadle said. A Reuters photographer there filmed windows blown out of cars and walls pocked with shrapnel.
Later in the day cars were engulfed in flames after an apparent air strike on a Sadr City parking lot. Police said another U.S. air strike in Kadhimiya, a Sadr stronghold in northern Baghdad, killed five people, and air strikes in Sadr City later in the afternoon killed 12.
U.S. forces said they killed 27 fighters in the capital on Thursday and 13 more on Friday. (Additional reporting by Ross Colvin, Randy Fabi, Wisam Mohammed, Waleed Ibrahim and Peter Graff in Baghdad and Mariam Karouny in Beirut; writing by Peter Graff; Editing by Janet Lawrence)