Mr Chalabi is seen as one of the Council's most ambitious figures
A former close ally of the US in Iraq, Ahmed Chalabi, has sharply criticised the US authorities in Baghdad after a raid on his home and party offices.
Mr Chalabi said when the US turned on its friends, it was in big trouble.
Troops surrounded Mr Chalabi's house in the upmarket Mansour district and removed computers and documents.
Mr Chalabi has become increasingly distanced from Washington after openly challenging how much power the coalition was ceding to Iraqis.
After the 2003 war, the Iraqi National Congress leader was a favourite of the Pentagon and tipped to lead Iraq.
But following Thursday's raid he said: "I am America's best friend in Iraq; if the CPA finds it necessary to direct an armed attack against my home you can see the state of relations between the CPA and the Iraqi people."
Brandishing a framed picture on which the glass was shattered, he accused troops and police of rousing him from his bed, ransacking his office, removing documents and a valuable copy of the Koran and "vandalising" his belongings.
Funding cut off
US officials have not fully explained what they were looking for and Mr Chalabi said they had found nothing incriminating.
Let my people go. Let my people be free. It is time for the Iraqi people to run their affairs
Ahmed Chalabi
Chalabi profile
Coalition spokesman Dan Senor said: "It was an Iraqi-led raid as a result of Iraqi warrants."
Mr Senor said US administrator in Iraq Paul Bremer was told about the raid on Chalabi "after the fact".
The INC has received millions of dollars from the US since its foundation in the 1990s.
But US officials said on Tuesday the Pentagon had cut off some $340,000 a month in funding to the party - payments that were made in part for intelligence gathered by the INC.
Deputy defence secretary Paul Wolfowitz said the decision "was made in light of the process of transferring sovereignty to the Iraqi people".
On Wednesday Mr Chalabi said in a BBC interview that Iraqis should have complete control over oil, development and property currently in US hands.
"The Iraqi Governing Council will clearly define what sovereignty means," he told Radio 4's Today programme.
In an angry outburst on Thursday, he said: "Let my people go. Let my people be free. It is time for the Iraqi people to run their affairs."
Plain clothes forces
Police sealed off Mr Chalabi's house and prevented reporters from approaching.
There were about a dozen troops and at least two army Humvees at the scene.
Several armed Westerners were also seen, wearing flak jackets and using unlicensed vehicles, assumed to be American private security officers, Associated Press reported.
Some people could be seen loading boxes into vehicles, and witnesses said some members of Mr Chalabi's entourage were taken away.
An aide accused the US of trying to deter Mr Chalabi from challenging the coalition over Iraqi sovereignty.
"The aim is to put political pressure. Why is this happening at a time when the government is being formed?" said Haidar Musawi at the scene.
Mr Chalabi was convicted in absentia to 22 years jail for multi-million bank fraud in Jordan in 1992. He says the charges were politically motivated.