Iraqi police have arrested four people in the killing of American Nicholas Berg, who was decapitated on a videotape that was released by his killers, an Iraqi security official said yesterday.

The suspects were former members of Saddam Hussain's Fedayeen paramilitary organisation, said the official, who spoke on condition of anonymity.

They were arrested a week ago in a house in Salaheddin province, north of Baghdad. The province includes Tikrit, Saddam's hometown. The group that was involved in the killing of Berg was led by Yasser Al Sabawi, a nephew of Saddam Hussain, the security official said.

He said American intelligence had asked Iraqi authorities to hand over the suspects, but they were still in Iraqi hands. Al Sabawi was not among those arrested, the Iraqi official said.

Police intelligence agents arrested the suspects as they arrived to "plot other major operations," the official said without elaborating. Four suspects had arrived early for the 7pm meeting and were inside the house, waiting for a fifth associate who escaped arrest, he said.

Police seized weapons and explosives at the site. The Iraqi official said the informant who tipped off authorities was killed by unidentified gunmen the day after the arrests.

American officials have said they believe Abu Musab Al Zarqawi, a Jordanian wanted for allegedly organising attacks on US troops in Iraq on behalf of Al Qaida, personally carried out Berg's killing.

On Tuesday, interim Iraqi Interior Minister Samir Shaker Mahmoud Al Sumeidi refused to comment on reports of arrests in the Berg case.

The body of Berg, 26, was found May 8 near a highway overpass in Baghdad. He was last seen on April 10 when he left his Baghdad hotel.

A video posted May 11 on an Al Qaida-linked website showed a bound Berg in an orange jumpsuit – similar to those issued to prisoners held by the American military at Guantanamo Bay, Cuba. He was sitting in front of five men, their faces masked, as one read an anti-American text.

After pushing Berg to the floor, the men severed his head using sawing motions with a big knife and held it up for the camera. They said his killing was in response to the abuse of Iraqis at the notorious Abu Ghraib prison.