The battle was only 16 miles from the packed refugee camps in the Albanian town of Kukes.
Nato bombers pounded Serb tank and artillery positions near the village of Zur. What appeared to be a tank bombardment of Serb positions sug- gested that the Albanian army, which pushed columns of tanks closer to the border yesterday, had returned some Serb tank fire. The origin of the tank fire could not be seen and Albania neither confirmed nor denied its forces had been involved.
The Nato raids appeared to have been in support of the KLA fighters and may have been a co-ordinated effort. The 20 or so Nato bombs or missiles, seemed effective. Serb tanks and guns fell silent soon afterwards, although the battle raged on in a valley some 600 yards (550 metres) from here on and beyond a wooded ridge.
Local people said some villagers had fled before the fighting erupted. For the first time in crisis, Albanian border police donned flak-jackets and carried their rifles.
It was the first time the KLA had been in action so close to the crossing. Some 200 male refugees, clearly terrified and weeping with relief, walked across the border in the afternoon while the crash of mortars and chatter of machine-guns echoed along the northern bank of Lake Fierze. They had to walk several hundred yards to find UN High Commission for Refugees' workers.
Earlier, the British army general John Reith, in charge of the Nato forces helping to ease the refugee crisis in Albania, warned that Serb forces were digging in close to Morini with heavy artillery. They appeared to be preparing themselves for a ground invasion.
A senior Nato official also said the Serbs had increased their military presence in the area. On the Albanian side of the border, meanwhile, 15 Chinese-made T-59 tanks from the Enver Hoxha Communist era took up positions near the village of Bardhoc, the last before the Morini border crossing.
General Reith warned that the war could come to Albania and could endanger the more than 100,000 Kosovo refugees in Kukes. Nato troops continued to move refugees to camps in the south and west with 300 leaving yesterday on board Dutch and Belgian army lorries. Chinook helicopters would join the relocation effort tomorrow, Nato officials said.
The once-tiny local airstrip is fast being turned into a major frontline military base that could bring in troops and equipment. Its red earth runway is at 1,500 metres long - Nato has already landed a Hercules C- 130 transport here in a test run.United Arab Emirates soldiers are expanding it to take bigger planes such as tank-carrying C-5 Galaxy transports.
Although General Reith said the airfield was "purely for bringing in aid", frantic activity by UAE, Dutch and Belgian soldiers yesterday, including the digging of deep perimeter trenches and the flattening of earth apparently to replace the current army tents with buildings, suggested it was being prepared as a possible forward attack base.