British soldiers in Basra, Iraq (file photo)

British troops in Iraq have started withdrawing from their last base in the volatile southern city of Basra, in preparation for handing security there over to Iraqi forces.

About 550 troops were reported pulling out of Basra Palace Sunday, to join 5,000 other personnel at a British air base on the outskirts of the city.

Britain's Defense Ministry said the withdrawal should be completed this week. A statement said transferring Basra Palace to the Iraqis has long been Britain's intention.

The statement also said Britain expects to hand over all security responsibilities in Basra province sometime in the coming months.

In other news, Iraqi Prime Minister Nouri al-Maliki set up a panel to investigate last week's clashes at a Shi'ite religious festival in the city of Karbala that left more than 50 people dead.

A statement from Mr. Maliki's office said the panel will be neutral and unbiased.

Before the announcement, radical Shi'ite cleric Moqtada al-Sadr warned he would take unspecified action if the Iraqi government fails to probe the violence in Karbala. Last week, he ordered a freeze on activities of his Mahdi Army militia.

Iraqi officials have said gunmen loyal to al-Sadr took part in the Karbala fighting - a charge the Mahdi Army denies. Iraqi authorities say they have detained more than 260 people for questioning about the clashes.

In violence Sunday, a car bomb in Baghdad's Kadhimiyah district killed four people and wounded seven.

Some information for this report was provided by AFP, AP and Reuters.