Iraqi Prime Minister Nouri al-Maliki has ordered the removal of U.S. and Iraqi army checkpoints around Baghdad's Shi'ite Sadr City district.
Iraqi and U.S. troops threw a cordon of checkpoints around Sadr City last week as part of an operation to search for a kidnapped American soldier.
Shi'ite activists have been protesting what they call a U.S. military siege of Sadr City, a sprawling enclave that is home to two million people.
A statement from Mr. Maliki's office says the barriers must be lifted by 5 p.m. local time Tuesday (1400 UTC) to ease the flow of traffic in the area.
But, the prime minister says the checkpoints may be re-imposed during night time curfews or as part of specific operations to capture terrorists.
Most shops, schools and government offices in Sadr City were closed today, as residents observed a general strike called by the party of radical Shi'ite cleric Moqtada al-Sadr.
The U.S. military says Iraqi special forces, backed by American advisers, raided Sadr City this morning and detained three suspects in connection with the kidnapping of the American soldier.
In another part of Baghdad, a car bomb killed three civilians on Palestine Street in the city center.
Meanwhile, the U.S. military says two more American soldiers were killed in Iraq Monday, raising the death toll of troops this month to 103.
A military statement says one U.S. soldier was killed by small arms fire during a battle in western Baghdad, while another soldier was killed by a roadside bomb south of the capital.
October has been the deadliest month for U.S. troops in Iraq since January 2005, when 106 soldiers were killed.
Some information for this report was provided by AFP, AP and Reuters.