In Baghdad's main Shia district of Sadr City, cries of anguish filled the air and hundreds of people beat their chests in grief as death reports continued to trickle in from Wednesday's tragedy.

Some people were diving in the river to search for bodies that fell from the bridge in the crush, while more refrigerated trucks were brought in to handle an ever-increasing overflow at morgues as corpses continued to surface.

Officials put the death toll at 965 in what was by far the largest single loss of life in Iraq since the US-led invasion in March 2003 that ousted Saddam Hussein.

Most of the dead were women, children and the elderly, who were crushed to death, trampled underfoot or drowned as panic swept through a massive crowd sparked by rumours of a suicide bomber in their midst.

Another 815 people were injured, and some 200 remained in hospital, officials said.

The stampede occurred shortly after rebel mortar fire targeted the nearby Kadhimiyah mosque, killing at least seven people, as up to three million Shias converged on Baghdad for an annual religious commemoration.

Hundreds of funeral tents lined the streets of Shia neighbourhoods in the capital while people in hospitals conducted grim inspections of corpses in search of their loved ones.

"I was looking for my son since yesterday among the wounded, but just now I found his body in a morgue ... I never accepted he would die," said Mohammed Jafar.

Despite fears of a sectarian backlash from the tragedy, the caretakers of one Sunni mosque sheltered scores of the wounded and survivors, and displayed identification cards of the dead for the relatives to identify.

Many charged that Iraqi insurgents, predominantly Sunni Muslims, were responsible for triggering the stampede by firing mortars at the mosque and then deliberately spreading panic.

An al-Qaeda-linked group calling itself the Jaiech Al-Taifa Al-Mansura (Army of the Victorious Community) claimed it carried out the attack on the mosque to "punish the genocides committed against Sunnis."

Interior Minister Bayan Baker Solagh said a "terrorist pointed a finger at another person saying that he was carrying explosives... and that led to the panic."

Iraqi authorities said the tragedy, which could further inflame sectarian tensions, was a "terrorist" act by toppled dictator Saddam Hussein's loyalists and al-Qaeda's frontman in Iraq, Abu Musab al-Zarqawi.

The tragedy could further stoke tensions between the country's Shia majority and the ousted Sunni elite, already at loggerheads over the failure to agree on the text of a draft post-Saddam constitution.

Iraq's top Shia cleric, Ayatollah Ali al-Sistani, called for unity and restraint after the tragedy, one of many which has befallen the Shia community -- frequently the target of insurgent attacks and long repressed under Saddam.

"All Iraqis must have unity and close ranks so as not to give a chance to those who want to provoke discord," Sistani said in a statement issued from the holy southern city of Najaf.