Witnesses said 40 knife-wielding militants stormed the settlement, and slashed their victims' throats.

The killings took place shortly after people had begun their Ramadan meal to the daytime fast.

The army is reported to have launched a sweep in the area to hunt for the assailants.

Correspondents say it was the most serious incident since the start of Ramadan 10 days ago.

Mortar attack

At around the same time, another district of Khemis Miliana was bombarded with home-made mortars, injuring dozens of people. Some reports said as many as 11 rockets fell on the town.

"I was performing the Taraouih [Ramadan] prayer at my home when I heard two explosions. Like many others, I first thought they were bombs because that's the first time we've come under mortar attack," a local man said.

The newspaper Le Matin reported that a school and several homes were hit during the attack. It said the shells were fired from the nearby Merouana mountain range.

Security services used helicopters to search for the attackers in the hills.

One report suggested that the mortar attack was a decoy to distract the attention of the security forces from the other attack.

Killing season

The area around Khemis Miliana, near the Zaccar and Dahra hills, has in the last few months been the focus of attacks by Islamist extremists, who regularly step up their activities during Ramadan.

In last year's fasting season, similar attacks claimed the lives of more than 1,200 people in Algeria.

Tens of thousands of people have died, most of them civilians, in a spiral of violence that began early 1992 with the cancellation of elections that the now banned Islamic Salvation Front was poised to win.