Fighting is reported to be taking place in a disputed area on the border between the two countries.

Eritrean radio quotes statement: "This attack will plunge the dispute into a new and dangerous phase" (in Tigrigna)

The Eritrean Foreign Ministry described the clash as a dangerous escalation of a border dispute between the two countries, which until recently enjoyed friendly relations.

It said this was the fourth attack by Ethiopia in less than two weeks.

Ethiopia's Foreign Ministry, in turn, accused Eritrea of starting the battle.

Ethiopian radio quotes foreign ministry statement (in Amharic)

"Prior to this morning's foiled attack on Aiga and Alitena ... the Ethiopian government refrained from engaging in any action which could potentially exacerbate the situation," said a statement broadcast by state radio.

Heavy fighting reported

A correspondent for the Reuter news agency confirmed that heavy fighting broke out at dawn on Wednesday at the border town of Zalambessa, about 160 km southwest of the Eritrean capital Asmara and continued throughout the day.

Zalambessa lies in the heart of territory claimed by both countries and the town straddles the border.

Eritrea and Ethiopia have been massing troops and armoured vehicles along their joint border since accusing each other of invading their territories in early May.

Eritrea won independence from Ethiopia after a referendum in 1993, and the two countries maintained close political and economic ties.

These started to show signs of strain late last year when they disagreed over Eritrea's decision to adopt its own currency.

Before the latest fighting, the US Government called on Ethiopia and Eritrea to exercise restraint.