According to local Serbian officials, up to 20 civilians, many of them children, were killed in the missile strike on the town of Surdulica on Tuesday.

UK Defence Secretary, George Robertson describes the strike on Surdulica

Reporters taken to the town report harrowing scenes as rescuers tried to retrieve body parts from the wreckage of houses as bulldozers cleared huge mounds of concrete rubble searching for more victims.

"There might have been some bombs that fell short," said the UK Defence Secretary, George Robertson, in an interview with the BBC.

"I regret any civilian casualties," he added.

Previously Nato had said it could "not exclude" civilian casualties as a result of its bombing of an army barracks in the town.

The latest setback to the alliance's stated ambition of avoiding civilian casualties came as the alliance's military commander in Europe, General Wesley Clark warned of an escalating air campaign to force a Yugoslav climbdown over Kosovo.

(Click here to see a map of last night's Nato strikes)

In other developments, aid agencies warned that Serb military activity was endangering the lives of Kosovan refugees in northern Albania, and the UN was told that an oil embargo on Yugoslavia would have a greater impact on the country's civilian population than on its armed forces.

The BBC's Andrew Bomford: Serb pictures clearly show extensive damage to the town

The death toll in Surdulica, 200 miles south of Belgrade, remained unclear several hours after the air strike. Local officials said more than 17 people were killed, national television put the figure at 20, while a journalist for Cable News Network counted 16 bodies at a local morgue, 11 of them children.

Undertakers collect human remains from the ruins in Surdulica

Officials said about 50 houses were destroyed in the attack, at midday on Tuesday, and 600 others were damaged.

Nato issued a statement saying its aircraft carried out a "successful attack against an army barracks in Surdulica."

It added: "Nato does not target civilians, but we cannot exclude harm to civilians or civilian property during our air operations over Yugoslavia."

Sources at the Pentagon said a bomb may have lost its laser guidance in the smoke put up by earlier explosions.

Reservists mobilised

General Clark say Yugoslav defections are increasing

Nato's Supreme Commander in Europe, General Wesley Clark, gave a warning that the bombing carried out so far against Yugoslav military targets is a fraction of what will take place unless Belgrade agrees to Nato demands over Kosovo.

The BBC's Rageh Omar in Thessaloniki: "A significant addition to NATO's firepower in the Balkans"

His statement came as US President Bill Clinton approved the call up of 33,102 reservists for active duty in the campaign.

Meanwhile a force of about 2,000 British soldiers supported by tanks and artillery guns have arrived in the Greek port city of Thessaloniki to join other Nato troops in in the neighbouring former Yugoslav republic of Macedonia.

Nato leaders are sticking to their policy that the air offensive against Yugoslavia will be enough to force President Milosevic to back down but have asked commanders to update contingency plans for a land invasion.

Refugees at risk in northern Albania

Serb shelling is threatening the lives of Kosovan refugees sheltering in camps along the Kosovo-Albanian border, according to aid agencies.

Clive Myrie reports from Albania: "Alarming incidents involving Serb artillery"

Serbian snipers and artillery have been targeting Kosovo Liberation Army positions a few kilometres from the camps, which house 50,000-80,000 people.

The UN refugee agency has for the past few days been trying to move refugees south as fast as it can.

Serb artillery positions firing Russian-made rockets have a range of more than 50 kilometres (30 miles), which could hit any one of the crowded refugee camps.

Oil embargo 'would hit civilian population first'

The UN Security Council has been warned that an oil embargo on Yugoslavia planned by Nato would have a greater impact on the country's civilian population than on its armed forces.

The UN Under Secretary-General, Sergio Vieira de Mella said the sanction would further restrict the ability of international humanitarian agencies to provide assistance to civilians inside Yugoslavia.

He acknowledged that most remaining Yugoslav fuel stocks were being diverted towards Belgrade's military effort, and said an embargo would affect the civilian population first.

The current shortage of fuel was likely to severely hamper Yugoslav agriculture, rendering this year's sowing and harvesting almost impossible, he said.

Yugoslav officials say billions of dollars of damage have been done

Nato says the number of ships unloading oil into Yugoslav ports has increased significantly since the idea of an oil embargo was first proposed.

General Clark said up to 10 tankers a day were docking at the Montenegrin port of Bar, though this has been hotly denied by the port authorities.

The Yugoslav authorities say more than $10bn worth of damage has been caused, and about half-a-million people have lost their jobs as a result of the air strikes so far.

The BBC's correspondent in Belgrade, Jackie Rowland, says some economists estimate that the financial damage is greater than the losses sustained by Yugoslavia during the whole of World War II.

Other top stories

• Red Cross sees US soldiers
• Nato threatens escalating air war
• Oil ban 'will hit civilians'
• Talks bid to stop Kosovo suffering
• Analysis: Cracks in Belgrade leadership

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