Iraqi security sources killed an Iranian man on Thursday and arrested another after an armed struggle in Kut, south-east of Baghdad, a security source said.
The two men held Iranian nationalities, and were believed to have been in Iraq to conduct terrorist attacks, General Aziz Latif al- Emarah told the Voices of Iraq (VOI) news agency.
Iraqi Security Forces (ISF) confiscated four machine guns from th two men. Kut is located some 180 kilometres south-east of Baghdad.
Investigations with the detainee are still underway, the ISF said.
Iraqi border guards have reportedly arrested four members of Iran's Revolutionary Guard in the past week.
The US accuses Iran of providing weapons and assistance to Shiite militias in southern Iraq.

Shares fell 2.1 per cent Friday on the Seoul stock exchange on general recession fears. South Korea's won dropped against the dollar.
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Amelie Mauresmo fell victim to a leg injury after less than half an hour on court Friday to hand over a 4-0 victory which put French compatriot Marion Bartoli into the final of the Brisbane International.
Mumbai-based movie Slumdog Millionaire won five prizes Thursday night at the Critics Choice Awards, cementing its position as a surprise favourite just as the Oscar season moves into high gear.
After the Taipei Zoo received two giant pandas from China, another Taiwan zoo said Friday it is seeking to receive a pair of pandas from China.