The security sweep in Sulaman Pek, a town 160 km (100 miles) north of Baghdad, turned fatal when some militants opened fire on officers inspecting homes, the sources said, adding that a number of the militants had been wearing suicide vests.
Thousands of troops and several helicopters were deployed in what appeared to be one of the largest security operations this year.
Militants have been regaining momentum in their insurgency against the Shia-led government since the start of the year and have been emboldened by the civil war in neighbouring Syria, which has inflamed sectarian tensions.
Security has been ramped up across the country after a mass jailbreak near Baghdad last month when more than 500 convicts, including senior al Qaeda operatives, escaped after militants attacked two prisons.
Monday's operation was a response to an attack late last month when militants shot dead 14 Shia tanker-drivers when checking their identity papers at a makeshift roadblock on the main route leading north from Baghdad.
Also on Monday, in Tal Afar, a town 420 km northwest of Baghdad, a bomb in a parked car killed four people and wounded seven. In the capital itself, a roadside bomb planted near a bakery killed four people and wounded 21 in an eastern district.
Increased attacks in Iraq have raised fears of a return to full-blown sectarian conflict. More than 1,000 Iraqis were killed in July, the highest monthly death toll since 2008, the United Nations said last week.
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