In a bitterly worded statement issued in Jakarta, where he is held under house arrest by the Indonesian government, Mr Gusmao denounced the complacency of the international community and promised the renewal of the armed struggle by the East Timorese guerrilla army, Falintil.
"I am compelled to authorise the Falintil guerrillas to take all necessary action... against the unprovoked and murderous attacks of armed civilian groups and Abri [Indonesian armed forces]," he said. "I also authorise the population to undertake a general popular insurrection against the armed militia groups who have been killing the population with impunity under the indifferent eye of the international community.
"I know that the East Timorese people will suffer another bloodbath, but I also know that we have no other alternative because it is our homeland and the right to it is ours. And we are prepared to make all the necessary sacrifices."
The announcement came after a day of fighting between hundreds of pro- Indonesian militia men and activists supporting independence. Estimates of the number of casualties ranged between two and 17 killed, with some seven seriously injured by gunfire, and dozens of others wounded with machetes and arrows.
Western diplomats in Jakarta and local journalists reported that refugees, some wounded, were fleeing to the Timorese capital, Dili, after the worst confrontation since Indonesia's January announcement that it was prepared to let go of the former Portuguese territory.
The violence broke out on the road between the towns of Maubara and Liquica on the west side of East Timor. Ever since the Indonesian announcement, unrest has been growing among the minority of East Timorese who favour continuing integration with Indonesia. Yesterday's battle involved independence campaigners in Liquica and a pro-Jakarta militia group, known as the Red and White, after the colours of the Indonesian flag.
Twenty-three years after a brutal invasion, which lead to the deaths of some 200,000 people, East Timor finds itself closer than ever to independence, but formidable obstacles remain. Talks in the United Nations between Indonesia and Portugal are scheduled to end this month with a proposal for "autonomy". If this is rejected by the East Timorese population, Jakarta has said it will relinquish sovereignty.
Large numbers of Indonesian settlers have left East Timor as tension has increased between independence supporters and pro-integrationists, some armed by the Indonesian military.
Despite being massively outnumbered, the Falintil guerrillas have fought a stubborn jungle war since 1975. Since January, they have been largely inactive as hopes have risen for a diplomatic solution.
Mr Gusmao's remarks last night indicate his increasing impatience with the slow progress of negotiations amid the increasing atmosphere of violence in the territory. "Our political goodwill and our commitment to peace have been perceived as our weakest point and because we have been trying to uphold this position the international community seems not to feel the necessity to contribute to a peaceful solution," he said.
"We have fought alone these past 23 years, not only against a despotic and murderous regime, but also against the complete indifference of the international community."