Supporters of cleric Moqtada Al Sadr stormed the government palace in Baghdad's Green Zone on Monday after the powerful Shiite leader said he was quitting politics, Trend reports citing The National.
Twelve protesters have reportedly been killed in the violence.
At least seven shells fell in the high-security Green Zone, which houses government buildings and diplomatic missions, a security source told AFP late on Monday.
It was not immediately clear who was behind the shelling, which was followed by the sound of automatic weapons being fired in the zone.
The security source said Mr Al Sadr's supporters opened fire at the Green Zone from the outside, adding that security forces inside "were not responding".
Tensions have soared amid an escalating political crisis that has left Iraq without a new government, prime minister or president for months.
Twelve Al Sadr supporters had been shot dead and 270 other protesters were hurt, some with bullet wounds and others suffering tear gas inhalation, medics told AFP.
By Monday afternoon, images and videos were circulating on social media showing followers of Mr Al Sadr entering the palace inside the heavily fortified Green Zone, where heavy gunfire could be heard.
Witnesses said earlier that Al Sadr loyalists and supporters of a rival Shiite bloc, the pro-Iran Co-ordination Framework, had exchanged fire.
The Framework condemned an "attack on state institutions", urging the Sadrists to engage in "dialogue".