The government of Iran Thursday protested the arrest of Iraq's highest Shiite Muslim cleric, while troops loyal to Saddam Hussein struck back at rebels in the northern oil city of Kirkuk, pouring sulfuric acid on some, Iran's Islamic Republic News agency reported.

Iraqi security forces arrested 94-year-old Grand Ayatollah Seyyed Abul Kassem al-Khouei in Najaf, a city holy to Shiite Muslims about 90 miles south of Baghdad, and transferred him with some associates to Baghdad, IRNA said.In Beirut, the mentor of the Iranian-backed Hezbollah, or Army of God, expressed fears that Khouei would face the same fate of Seyyed Mohammed Baker al-Sadr, a prominent Iraqi clergyman who was slain by members of Iraq's ruling Baath Party in 1979, a year before the eight-year Iran-Iraq war began.

"We have fears that the life of the grand Islamic authority is in danger," Sheikh Mohammed Hussein Fadlallah said.

Fadlallah's spokesman, Hajj Hani, said Khouei was forced to express opposition to the uprising "to weaken the morale of the revolutionary fighters."

The official Iraqi News Agency reported Wednesday that Khouei condemned the rebellion, saying, "Those mobs were not obliged to do what they have done. They were motivated by greed to gather money or seek individual revenge."

Khouei, considered to be an apolitical cleric, issued an appeal Tuesday for bodies in the streets of the southern industrial city of Basra to be buried, but made no comment on the unrest in Iraq.

The elderly cleric, the only grand ayatollah in the past 12 years to remain in Iraq, is the highest spiritual authority for Iraqi Shiites, who make up a slim majority of the country, which is ruled by Sunni Muslims.

IRNA said the Foreign Ministry in Tehran summoned Iraqi Charge d'Affaires Fakhri Hamoudi and gave him a strongly worded note protesting Khouei's arrest and what it described as the "desecration of the theological school in Najaf."

The attack on Kirkuk by loyalist forces came two days after Kurdish rebels said they had captured the city at the end of a week of heavy fighting in the outskirts. Kirkuk, Iraq's fourth-largest city, is an important center for oil production.

A rebel spokesman said Saddam's troops were counterattacking - but had been repulsed - and used napalm and phosphorus shells against the civilian population.

Quoting the Tehran-based Supreme Assembly of the Islamic Revolution in Iraq, an organization opposed to Saddam, IRNA said Iraqi helicopters dropped sulfuric acid on people in Kirkuk during a demonstration against the government. Many people were killed, the report said.

This and other reports about the postwar fighting in Iraq could not be independently confirmed.

In southern Iraq, IRNA quoted refugees as saying clashes continued in Basra between government troops and Shiite fundamentalists in the city and many people were killed in the most recent attacks by the troops in and around the city.

Mohammad Usman, a refugee from Tanuma on the outskirts of Basra, Iraq's second largest city and a key industrial and military center, told IRNA that Saddam's loyal Republican Guard troops set fire to some people after executing them and "there were many charred bodies lying here and there."

The southern cities of Amara and Nasiriya were still under rebel control, and several government troops had joined the rebels, the Iranian news agency said.

In Beirut, a spokesman for the Iraqi dissident group said Saddam's troops dropped people from helicopters flying at high altitudes and used missiles to attack Najaf and Karbala, two holy cities in central Iraq.

On Wednesday, Baghdad accused Iran of sending agents into the country to stir up the postwar unrest, an allegation Tehran denied.

The acrimony between the two neighbors erupted weeks after the two countries resumed diplomatic relations during the Persian Gulf crisis. They severed ties in 1980 at the beginning of the Iran-Iraq war.

The Baghdad-based Iranian dissident group Mojahedin Khalk said Iran's paramilitary Revolutionary Guards, disguised as Iraqi civilians, had crossed into Iraq in large numbers and attacked its training bases. The group also said Iranian clerics were seen helping Iraqi rebels in the Basra area.

In Riyadh, Saudi Arabia, the Red Cross said 1,150 Kuwaitis were freed by Iraq in compliance with terms set down by the allies.

The release came as a four-man Iraqi delegation arrived for talks with allied officials - the first time the two groups have met outside Iraq since the war ended three weeks ago.