(Updates with police, colour) KERBALA, Iraq, Aug 27 (Reuters) - Police killed three people on Monday in clashes with pilgrims in Iraq's holy city of Kerbala, where tens of thousands of Shi'ites have gathered for one of the holiest days on the Shi'ite Muslim calendar. A Reuters photographer said he saw one pilgrim shot dead outside his hotel. Several wounded were carried away by fellow pilgrims. A water tanker was ablaze and the sounds of gunfire echoed in the streets around the hotel, situated between the Imam Hussein and Imam Abbas mosques, for about two hours, he said. Police said they opened fire on a large crowd of pilgrims infuriated by the strict security measures in force in the city for the celebrations, killing three and wounding 13. The shots were fired after the pilgrims began brawling with the policemen. Kerbala's police chief, Brigadier-General Raid Shakir, has said that 10,000 police officers and 5,000 Iraqi soldiers have been deployed to guard the city for the ceremony on Tuesday and Wednesday marking the 9th century birth of Muhammad al-Mahdi, the last of 12 imams Shi'ites revere as saints. Shi'ites believe he never died and will return to save mankind. Strict security measures are normally enforced during such religious rituals, with cars banned from the city and pilgrims body-searched before entering its precincts. Pilgrims from Baghdad, 110 km (70 miles) to the north, and other Shi'ite cities and towns have been converging on Kerbala, mostly on foot, in the past few days. Shi'ite pilgrimages have been a target of Sunni Arab bombers and have also served as rallying events for the country's Shi'ite majority, now running the government after decades of repression under Sunni Arab ruler Saddam Hussein. Until Monday, the pilgrimage had been largely peaceful. Police in the towns of Iskandariya and Latifiya, south of Baghdad, said gunmen killed one pilgrim and wounded five. One female pilgrim was killed and six, including three children and three women, were wounded on Sunday in a drive-by shooting as they passed through the mainly Sunni Doura district of southern Baghdad.