A spokesman for the Organisation for Security and Co-operation in Europe (OSCE), said the shooting occurred in the town of Suva Reka, 40 km (25 miles) south-west of the regional capital Pristina.

The three civilians were in a taxi which is thought to have been caught in crossfire.

Earlier, Serbs had lifted roadblocks erected on Thursday in protest at the killing of a Serb security guard in a village south of Pristina on Wednesday, the Orthodox Christmas Eve.

Demonstrators say the Serbian guard was killed by Albanian separatists. The Serb-run Media Centre blamed "terrorists" - a term used by Serbs to mean the Kosovo Liberation Army.

In a separate incident near Kosovska Mitrovica, a town 35km north-west of Pristina, KLA fighters captured eight Yugoslav army soldiers, according to Albanian and Western sources.

OSCE monitors were trying to negotiate their release.

The Belgrade news agency Beta reported that the captors had promised that the soldiers would be freed on Saturday morning.

Earlier reports said a convoy of Yugoslav army vehicles, including tanks, was heading to the north of the province, where the hostages are being held.

The KLA is fighting for the independence of Kosovo, a province of Serbia, where the vast majority are ethnic Albanians.

Safety assurances

International cease-fire monitors in the province have sent a team to the area.

Villagers remember the shot guard

Many of the demonstrators were from Preoce village, where the dead man was shot.

One said: "They killed the most peaceful man in our village."

Roadblocks were first set up on one road 10km (six miles) south of Pristina and on another at the city's southern outskirts. They soon spread to all roads leading to the capital

The independent Belgrade-based news agency, Beta, reported that the villagers want either the Yugoslav President, Slobodan Milosevic, or Serbian President Milan Milutinovic to guarantee their safety in the region.

Cafe violence

The guard's death followed an incident on Tuesday in which an unidentified attacker threw a hand grenade at a Serb cafe in Pristina, injuring three young people.

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Local Serbs retaliated by smashing windows at about a dozen ethnic Albanian cafes.

The roadblock incident came as US Kosovo peace mediator Chris Hill arrived in Pristina to meet ethnic Albanian leader Ibrahim Rugova.

He said: "I had to take an alternate route to come into Pristina because the main road was blocked.

"This is more indication that we have to get a political process going that can gain momentum and lead us into a peaceful spring."