Congolese soldiers withdrawing from the village of Kibumba, 30km (20 miles) to the north, also retreated to the city, creating a sense of panic among the population, our correspondent added.
Earlier in Kibumba, our reporter saw an exchange of fire across the Rwandan border. Rwanda denies claims it is backing the rebels.
Correspondents say the 17,000-strong UN force in DR Congo - the world's largest - is stretched to breaking point.
Both Congolese President Joseph Kabila and the head of the UN mission have called for more troops.
The UN security council is to meet in an emergency session to discuss the crisis late on Wednesday.
UK Africa minister Mark Malloch-Brown said the world was mobilising to avoid a repeat of tragedies like the 1994 Rwandan genocide, when the international community looked on as hundreds of thousands were killed.
"We all have those ghosts in the backs of our minds," he told the BBC. "We need to stop this before it escalates to anything like that level."
France, which holds the rotating presidency of the EU, said it supported sending forces to the area.
French Foreign Minister Bernard Kouchner said that up to 1,500 men could be deployed "in Europe's name within eight to 10 days".
Footage of DR Congo government troops, displaced people and UN peacekeepers
On Tuesday night, supporters of Gen Nkunda took the town of Rutshuru, near the Ugandan border.
Neighbouring Rwanda has been accused of backing the general, who left the army and launched his own rebellion after DR Congo's five-year conflict officially ended in 2003.
On Tuesday evening, Mr Kabila sent two envoys to Rwanda to discuss the crisis.
But the Rwandan government denies it has anything to do with the conflict.
"They have been accusing us but wrongly," Joseph Mutaboba, the Rwandan president's special envoy to the Great Lakes, told the BBC's Network Africa programme.
A peace deal was signed in Goma between the government and various rebel groups at the end of January.
Although he signed the deal, Gen Nkunda has refused to disarm while Rwandan Hutu rebels still operate in the area.
This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.