Deputy chief of staff General Valery Manilov told a news conference in Moscow that the decision had been reached at a high-level defence meeting in the Kremlin.

"It was decided today to prepare for a withdrawal of a considerable part of the troops engaged there," he said. He did not give details of the numbers or the timing.

The Russian military says it has raised the Russian flag in the centre of Grozny, outside the former residence of the Chechen President, Aslan Maskhadov, indicating it now controls most of the city.

Russia, which says it has 93,000 troops in Chechnya, earlier announced it was preparing to launch a new phase of the war, shifting the focus of its operations to the mountains south of Grozny.

Losses reported

General Manilov also gave details of Russian losses in the campaign, saying 822 military servicemen had been killed in Chechnya and 2,327 had been wounded.

He said 241 soldiers from the Interior Ministry forces had also been killed there, and 854 wounded.

Chechen fighters say Russian casualty figures are much higher, and correspondents say that, given restrictions on the movement of journalists in the republic, there is no way to confirm the claims independently.

New rebel base

Military officials say they believe Chechen rebels have established a new base in the mountain village of Shatoi, south of Grozny, after fleeing the Russian onslaught on the city.

Both sides have already reported fierce fighting at the entrance to the Argun Gorge where the rebels have established a number of cave hideouts.

About 3,000 rebels are thought to have fled the capital since Monday, many of them heading south through the forests to regroup in the mountains.

No early end

Most were heading southwest through the villages of Alkhan-Kala and Katyr-Yurt before heading south. Smaller groups were also reported to be moving towards rebel strongholds in the southeast of the republic.

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Russian troops are conducting house-to-house searches along the rebels' escape route but many residents told them they had arrived too late to catch any fighters.

Grozny has so far been the war's key political prize but occupation of the devastated city is not expected to bring an early end to the war.

Observers say the Russians will face an even tougher battle in the mountains, where the Chechen guerrillas are expected to have the upper hand.

Rebel mobility

Rebel commanders have denied Russian claims to have inflicted heavy casualties on their fighters and say many more of their men are continuing to make it out of the city alive.

The rebels have also pledged to retake the city from Russian control.

During the first Chechen war, in 1994-1996, Chechen soldiers also used the southern mountains as a base after being forced from Grozny. From there, they launched the successful assault to re-take the capital and force Russian troops out of the republic.

French concern

On a visit to Moscow, the French Foreign Minister, Hubert Vedrine, has become the latest western official to express concerns about the Chechen campaign.

Earlier this week, the speaker of the Russian parliament, Gennadi Seleznyov, was quoted as saying that military operations in Chechnya would be over by the presidential elections on 26 March.

Meanwhile, concern has also been expressed over the safety of a Russian journalist handed over by the army to the rebels in exchange for two Russian soldiers held by the Chechens.

The journalist, Andrei Babitsky, an employee of the American funded Radio Liberty, was detained by the Russians for more than two weeks for allegedly working in Chechnya without accreditation.

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