BAGHDAD/WASHINGTON (Reuters) - Washington on Friday spurned an Iraqi request to prepare to pull out its troops, amid heightened U.S.-Iranian tensions after the U.S. killing of an Iranian commander in Baghdad, and said it was exploring a possible expansion of NATO’s presence there.

Seeking to tighten pressure on its foe, the United States meanwhile imposed more sanctions on Iran, responding to an attack on U.S. troops in Iraq launched by Tehran in retaliation for the death of General Qassem Soleimani.

Iraq could bear the brunt of any further violence between its neighbour Iran and the United States, its leaders caught in a bind as Washington and Tehran are also the Iraqi government’s main allies and vie for influence there.

President Donald Trump said Iran had probably planned to attack the U.S. embassy in Baghdad and was aiming to strike four U.S. embassies when Soleimani was killed in a U.S. drone strike.

“We will tell you probably it was going to be the embassy in Baghdad,” Trump said in a clip of an interview with Fox News. “I can reveal that I believe it would have been four embassies.”

Iraqi Prime Minister Adel Abdul Mahdi made his request for preparations for a U.S. troop withdrawal in a phone call with U.S. Secretary of State Mike Pompeo on Thursday in line with a vote in Iraq’s parliament last week, his office said.

Abdul Mahdi asked Pompeo to “send delegates to put in place the tools to carry out the parliament’s decision,” his office said in a statement, adding that the forces used in the killing had entered Iraq or used its airspace without permission.

The State Department said any U.S. delegation would not discuss the withdrawal of U.S. troops as their presence in Iraq was “appropriate.”

“There does, however, need to be a conversation between the U.S. and Iraqi governments not just regarding security, but about our financial, economic, and diplomatic partnership,” spokeswoman Morgan Ortagus said in a statement.

Trump said in the Fox News interview that if Iraq wanted the United States to leave, he would tell them: “You have to pay us for the money we put in.”

He said the United States has $35 billion of Iraq’s money “sitting in an account.”

“I think they’ll agree to pay. Otherwise we’ll stay there,” Trump said.

Pompeo told reporters a NATO delegation was in Washington on Friday to discuss the future of the Iraq mission and a plan to “get burden-sharing right in the region”.

Separately, the State Department said Pompeo had discussed Iran with Canadian Foreign Minister Francois‑Philippe Champagne as well as “the opportunity for an expanded NATO force in Iraq and appropriate burden sharing”.

The latest flare-up in the long covert war between Iran and the United States began with the U.S. killing of Soleimani, Iran’s top general, in a drone strike on Jan. 3. Iran responded on Wednesday by firing missiles at U.S. forces in Iraq.

In the aftermath, both sides backed off from intensifying the conflict but the region remains tense.

Iraq’s top Shi’ite Muslim cleric condemned the U.S.-Iranian struggle happening on Iraqi soil, saying it risked plunging his country and the wider Middle East into deeper conflict.

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Grand Ayatollah Ali al-Sistani said it was Iraqis who stood to suffer most from the U.S.-Iranian conflict. In a message delivered through a representative at Friday prayers in the holy city of Kerbala, Sistani said no foreign powers should be allowed to decide Iraq’s fate.

CALLS TO LEAVE

“The latest dangerous aggressive acts, which are repeated violations of Iraqi sovereignty, are a part of the deteriorating situation” in the region, Sistani said. “Iraq must govern itself and there must be no role for outsiders in its decision-making.”

Iraq has suffered decades of war, sanctions and sectarian conflict, including the U.S.-led invasion of 2003.

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At Friday prayers in Tehran, mid-ranking Iranian cleric Mohammad Javad Haj Aliakbari said U.S. interests across the world were now exposed to threats.

Since Soleimani’s killing, Tehran has stepped up its calls for U.S. forces to leave Iraq, which like Iran is a mainly Shi’ite Muslim nation. Iranian Supreme Leader Ali Khamenei has said the retaliatory strikes were not enough and that ending the U.S. military presence in the region was Tehran’s main goal.

Critics have called Soleimani’s killing a reckless action.

But Pompeo said on Friday Washington had specific information about an imminent Iranian threat including to U.S. embassies, adding: “American lives were at risk.”

As part of his most recent activities in Iraq, Soleimani had encouraged pro-Iranian Iraqi militias to quash months of protests by Iraqis opposed to the influence in their country of foreign powers such as Iran and the United States.

In Iraqi cities, demonstrators took to the streets again on Friday, determined to keep up the momentum of their protests despite attention turning to the threat of a U.S.-Iran conflict.

Gunmen killed two local journalists covering protests in the southern city of Basra, security sources and state media said. Ahmed Abdulsamad, Basra correspondent of Dijla TV station — owned by senior Sunni politician Mohammed al-Karbouli — was killed immediately while his camera operator succumbed to his wounds in hospital, a medical source told Reuters.

“Politicians and clerics...are either with Iran, the U.S. or other countries. Our allegiance is to Iraq only, not to factions and politicians,” said Essam Faraj, 54, a demonstrator in Baghdad.