Rebels vowing to overthrow the president of Chad have moved to within 100km (65 miles) of the capital, N'Djamena, foreign sources say.
The military says they have recaptured Mongo
Security has been tightened in the city, with armoured vehicles and a heavy army presence on the streets.
A contingent of French troops is being reinforced, while foreign nationals are making evacuation plans.
The increased tension comes three weeks before elections expected to be won by President Idriss Deby.
The government blames Sudan for inspiring the uprising by United Front for Change (Fuc) rebels - an accusation Sudan denies.
United Nations Secretary General Kofi Annan is "deeply concerned" by the fighting in eastern Chad, his spokesman said.
The United States said it was "deeply disturbed" by the developments, and advised Americans in Chad "to exercise extreme caution".
The government says it has regained control of Mongo, 400km (250 miles) east of the capital, after it was raided by Fuc rebels.
The government had previously denied that the Fuc had captured Mongo - the nearest it had come to N'Djamena since the six-month rebellion began.
But while the government said it had stopped the advance in Mongo, a French defence ministry source said rebels had moved to another town just 100km from the capital.
"It would seem that there have been clashes between rebel forces and Chadian soldiers," the unnamed source in Paris told the AFP news agency.
France has maintained a contingent of troops in its former colony since independence in 1960, and is providing intelligence information to the Chadian government.
It has ordered another 150 troops from Gabon to reinforce its 1,200 already in Chad.
"France sets great store by stability in Chad [and] ... reiterates its unambiguous condemnation of attempts to take power by force," a French foreign ministry spokesman said.
However the BBC's Hugh Schofield in Paris says it is highly improbable that French soldiers will be called on to intervene even if the government is close to falling.
The BBC's Stephanie Hancock in N'Djamena says mobile phone networks have been cut off, which is usually an indication that there is trouble.
After an initial rush on Wednesday morning to get money from banks, most people have returned home to see what happens, she says.
Communications Minister Hourmadji Moussa Doumgor said the attack on Mongo was carried out by "mercenaries". "This government has all the resources it needs to protect its territory," he said.
The violence could undermine efforts to stabilise the situation in the neighbouring Sudanese province of Darfur and in the Central African Republic, the spokesman added.
President Deby is seeking re-election next month
Security in the country has deteriorated ahead of presidential elections scheduled for next month, our correspondent says.
In recent months, a large number of army officers have deserted to join the Fuc, a coalition of rebel groups led by Mahamat Nour from bases in Darfur.
"We have passed through the eastern borders of the countries and we are going towards the west and our objective is N'Djamena. We are advancing on three fronts," Fuc spokesman Moussa Issa told the Radio France Internationale.
The Fuc is seeking to overthrow Mr Deby, who seized power in 1990 after launching a rebellion from bases in Darfur.
The president is standing for re-election in May, but the main opposition parties say they are boycotting the vote.