A week after hurricane-triggered floods turned this fabled southern city into a dark hell of rotting corpses and armed gangs, New Orleans saw Tuesday what its mayor called the first "rays of light."

As army engineers worked furiously to pump the putrid floodwaters back into Lake Pontchartrain, Mayor Ray Nagin said only 60 percent of the city was under water, compared to 80 percent last week.

"I'm starting to see water levels at much lower levels," Nagin said. "Some areas where the water was as high as the rooftops, you're now starting to see part of the buildings."

Downtown New Orleans was a cacophony of supply trucks, ambulances, squad cars, evacuation buses and armed personnel carriers packed into the city's first traffic jam since Hurricane Katrina struck eight days ago.

On the other side of town, a tire store made bustling business fixing tires for residents, rescue workers and police who have had to drive over shattered glass, tree limbs and other debris littering the city.

In the western suburb of Jefferson Parish, which had escaped the flooding that devastated the city center, life began to take on a semblance of normalcy.

Utility crews worked on restoring power and a few streetlamps were lit for the first time in more than a week. Limited services returned, with at least one pharmacy and several gas stations opened.

A day after residents of relatively unscathed suburbs were allowed to return, Donna Marziale was back at work in Jefferson Parish mowing her leaf-strewn lawn. "Is that anal or what?" she joked.

Marziale is a registered nurse at Charity Hospital, which is still surrounded by floodwaters. She evacuated prior to the storm and spent a week with a friend's family in nearby Lafayette.

After cleaning up her house, Marziale aimed to head into New Orleans to join the relief effort. "I'm trying to get all my ducks in order, and then I can get back in to help," she said.

If New Orleans looked like it had turned a corner in its battle for survival, it still housed just a few thousand diehards and its receding waters uncovered new horrors daily.

An ad hoc fleet of rescue boats, private and public, plied the foul swamps searching for survivors in their homes but mostly finding bloated cadavers bobbing amid the filth.

Rescuers found the bodies of 22 people who had lashed themselves together around a pole in a desperate attempt to stay alive. Corpses were seen caught on barbed wire at the country club in suburban Metairie.

Helicopters hovered overhead, including one from the US Coast Guard that dumped water on a fire that razed two houses.

Warren Johnson, 40, who watched from his nearby home, was among the few on his street who did not heed evacuation orders. But he said he and his wife would leave soon.

"The situation is untenable. There is no power, no water, we are waiting for things to settle down," Johnson said. "They want everyone to get out and there is no reason to stay."

"We will definitely come back. New Orleans is a good city, it has a lot of heart. It has this je ne sais quoi," he said.

Standing with Johnson were a couple of bedraggled and exhausted neighbours he had taken in. "He is manic depressive and he is taking care of his mentally handicapped sister," said Johnson, pointing to William Kelly, an artist.

Kelly, 45, wanted to leave town but was scared he might be separated from his sister who cannot fend for herself. "I am her only relative. I am trying to hang on for her sake. If it weren't for her I would commit suicide."

Nagin said the water was becoming increasingly toxic, the air filled with gas leaks and mosquitos fresh from biting dead people. But the mayor stayed relentlessly upbeat about the recovery.

"We're starting to see significant progress," he told reporters. "I'm starting to see rays of light all throughout what we're doing."

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