"Fighting is continuing on the (Badme) front. The situation is still serious," a senior Eritrean government official said.

Both sides have claimed the upper hand in fighting which began on Tuesday.

On Wednesday afternoon, Eritrean radio said 31 Ethiopian tanks had been destroyed, with more three captured.

The radio said Eritrean defence forces had also gunned down a helicopter gunship, which is still behind Eritrean lines.

Officials gave no details of casualties, although Eritrean radio said it expected Ethiopian casualties were very heavy.

Claims denied

The Ethiopian Government denied that its tanks had been destroyed or captured. A government spokesman described the Eritrean claim as a "lie".

In a separate statement the Ethiopian government urged Eritrea to withdraw from Ethiopian territory: "Ethiopia is only using air power because it has been forced to defend its territory from invasion," the communique said.

According to Eritrea, an Ethiopian ground offensive began early on Wednesday along the 60km Mereb-Setit front near the town.

The advance was preceded by a day of artillery and air bombardment in an attempt to recapture land occupied by Eritrea last May.

Fighting on two other fronts to the east appeared to have died down on Wednesday, leaving Badme the only focus of the conflict.

The town lies around 170km southwest of Asmara, and 650km northwest of the Ethiopian capital Addis Ababa.

Denials

On Wednesday, Ethiopia denied US charges that its air force targeted economic sites and civilian populations in violation of an air moratorium agreed last June.

Eritrean Presidential Adviser, Yemane Gebreab: The Ethiopian Government is not interested in peace

Eritrea said that four civilians had been killed when Ethiopian planes hit a village on Sunday.

For its part, Ethiopia has confirmed it carried out an attack on Sunday targeting the airport at the port of Assab, which handles civilian traffic into Eritrea.

However, Ethiopia said it had never bombed civilian areas.

Peace on the table

Fighting resumed between Eritrea and Ethiopia last month in the wake of a six-week ground and air war between the two former allies last May.

Efforts to find a peaceful solution to the conflict, led by the Organisation of African Unity (OAU), have so far failed.

The OAU plan, backed by the United Nations, United States and European Union, calls for the deployment of peacekeepers and neutral delineation of the border.

The plan has stalled over a clause demanding that Eritrea withdraw its troops first from positions they occupied in May.

The BBC's Cathy Jenkins: Fighting will continue as long as Eritrean troops remain in Ethiopia

BBC East Africa Correspondent Cathy Jenkins says Ethiopia believes that not enough pressure was put on Eritrea to accept the OAU proposal.

A delegation representing the EU visited Asmara and Addis last week, but was unable to secure a ceasefire agreement.