Iraqi paramilitaries exchanged fire with police in Baghdad Thursday, the latest sign of tension between the government and the country's Shiite militias, security sources said.

An interior ministry officer said around 15 gunmen from the Hashed al-Shaabi (Popular Mobilisation) force stormed an unfinished health ministry building in the Zayyounah neighbourhood overnight.

"The guards went to the police, which dispatched units of around 60 men equipped with armoured personnel carriers to expel the gunmen, who opened fire," the officer said.

A police colonel said three policemen were wounded in the clashes, which resulted in the militiamen eventually leaving the building.

"The gunfire lasted for almost an hour," said Wafa Mohammed, who lives nearby. "We were scared inside our home and had no idea what was happening on the street."

A shop owner from the same neighbourhood said some members of the security services negotiated with the gunmen when the exchange of fire stopped.

The Hashed al-Shaabi is made up of volunteers and several mostly Shiite militias. They are theoretically under the prime minister's command but largely escape his control.

The militias, several of which have close ties with Tehran, have done much of the heavy lifting in the fight against the Islamic State jihadist group that took over swathes of Iraq last year.

The interior ministry issued a statement that appeared to allude to the overnight clash in Zayyounah.

"In the wake of the latest incidents, the minister and ministry officials discussed the situation in Baghdad and the means to provide security and stability," it said.

The statement said the minister had asked Prime Minister Haider al-Abadi, his party and other political groups, "to support the ministry in its efforts to confront undisciplined groups."

Interior Minister Mohammed al-Ghaban himself is a member of the Badr organisation, the political wing of one of Iraq's most prominent Shiite militias.

The militias and federal forces have consistently jockeyed for supremacy in the battle against IS.

While paramilitary groups enjoy huge popular prestige, critics say those groups need to do more to rein in members -- or gunmen who claim to be members -- challenging the law with impunity, especially in urban areas.