Ethiopia accused Eritrea of launching a major offensive early yesterday. Eritrea in turn said its neighbour had started the latest battle, which included intense shelling, mortar and tank fire.
Residents of Adigrat, some 15 miles south of the Ethiopian border town Zalambessa, and the last sizeable Ethiopian town before the frontier, were woken at 5am by the sound of battle.
Officials said that villages in between were being pounded by the Eritreans, who were on the offensive with an "incredible array of heavy weapons".
An Ethiopian government spokeswoman said Ethiopian troops had repulsed three attacks in the area. The Eritreans insisted, however, that they held the upper hand.
The latest flare-up follows a call by Eritrea for direct talks between the two former friends. Eritrean President Issaias Afewerki told Reuters in an interview in the Eritrean capital, Asmara, that he had no problem with meeting Ethiopia's Prime Minister, Meles Zenawi, but said he feared the conflict would escalate first.
Ethiopia rejected the call, saying there could be no negotiations while Eritrea occupied "part of our territory by force".
United States proposals call for Eritrean forces to withdraw to positions held before 6 May and for the demilitarisation of disputed territory.
The row has posed a diplomatic test for the Organisation of African Unity, whose annual summit is currently under way in Burkina Faso.
Tension remained high in the Eritrean capital yesterday after the Ethiopian and Eritrean air forces traded bombing raids that killed nearly 50 people and hastened the evacuation of around 2,000 foreign nationals from Asmara.
Ethiopia's foreign ministry, meanwhile, reported that Eritrea had expelled more than 3,000 Ethiopians after confiscating their property and detained over 500 others.
Hostilities erupted on 6 May over a rocky triangle of land which both countries claim, but Ethiopia says economic issues are at the root of the conflict. Eritrea last year introduced its own currency, the nakfa, and wanted it to be directly exchangeable with the Ethiopian burr in cross- border transactions.
Both sides have mobilised veterans of the shared guerrilla struggle which overthrew the Ethiopian military dictator, Mengistu Haile Mariam, in 1991.
Eritrea took its independence from Ethiopia after a referendum in 1993 and the two countries were on friendly terms until the border disagreement turned violent.Reuse content