Residents in Iraq's Shiite holy city of Karbala have denounced a local decision that could soon see salesmen in trouble for displaying female mannequins in anything but Islamic clothing.

Imam Hussein, the grandson of the Prophet Mohammed and an important figure in Shiite Islam, is buried in Karbala.

Posters warning against indecent behaviour have been plastered around the city as part of the application of a 2012 provincial council decision to uphold its "holy character," council member Nasser Hussein al-Khozali said.

The signs warn residents against "shockingly displaying women's clothes," as well as "selling indecent films" and airing "music or indecent words in public places."

The posters, signed by an "implementation committee for the decision on Karbala's holy character," warn that sanctions will be taken against offenders.

Not everyone is the city supports the decision, however.

"Listening to music is part of personal freedoms," said taxi driver Majah Hassan, as a song belted out of his car radio.

"Nobody can forbid it as I'm not harming anyone by doing it."

Inside a shopping centre, women's clothes salesman Ahmad Hussein railed against a decision that he said infringed freedoms and hurt business.

"The provincial council would do better fixing the roads and improving public services," he said.

The head of a civil society association said the council decision was no different from the harsh rules imposed by Daesh militants on areas they controlled until their defeat in Iraq earlier this month.

"This kind of decision, which is allegedly based on religion, is in fact no different from Daesh ideology," Ehab al-Wazarni said.

Hadi al-Mussawi, also an activist, said the move "aimed to garner votes in the elections" for parliament in May.

After seizing control of second city Mosul in 2014, Daesh prohibited shopkeepers and street vendors from displaying women's clothing on mannequins.

Several Shiite armed groups also imposed the rule in southern Iraq at the height of the sectarian violence that followed the 2003 U.S.-led invasion of the country.