An overnight exchange of fire in Georgia's breakaway South Ossetia province left three Georgian soldiers dead, the president has confirmed.
South Ossetia fought a bloody war with Georgia in 1992
"Bandits" killed them as they defended a road leading to ethnic Georgian villages, Mikhail Saakashvili said.
South Ossetia said unspecified forces in the villages had fired first and 28 people were injured.
The deaths come after weeks of clashes. Russia, which has strong local ties, has called for urgent talks.
Russian First Deputy Foreign Minister Valeri Loshchinin said officials were flying to the Georgian capital, Tbilisi, and Moscow was seeking an emergency meeting in the South Ossetian provincial capital, Tskhinvali.
The BBC's Natalia Antelava reports from Tbilisi that the incident seriously undermines an agreement reached this week in Moscow between the Georgian and Russian defence ministers.
Under the agreement, all armed groups would withdraw from the conflict zone, apart from police and the joint peacekeeping force already there.
Analysts suggest that, after the latest fighting, both sides are likely to increase rather than reduce their military presence.
'Hospital and kindergarten hit'
A spokeswoman for South Ossetia's unrecognised government, Irina Gagloyeva, told the Associated Press news agency that Ossetian villages and Tskhinvali had come under attack.
Population: About 70,000
Major languages: Ossetian, Georgian, Russian
Major religion: Orthodox Christianity
Currency: Russian rouble, Georgian lari
The province's parliament said later that 28 people had been injured, and a hospital and a kindergarten in Tskhinvali had been damaged by shelling along with 50 Ossetian homes.
"All night they were firing from all types of weapons - mortars, artillery, everything was engaged," one South Ossetian fighter told Russia's Channel One Television.
The Georgian government said at least three Georgian villages were hit: Tamarasheni, Kurta and Achabeti.
Speaking at a meeting of the Georgian Security Council, President Saakashvili confirmed that three Georgian peacekeepers had been killed.
Members of the Georgian and Ossetian units in the Russian-led joint peacekeeping force have clashed in the past.
The province, which historically has strong ties with Russia and its own province of North Ossetia, broke away from post-Soviet Georgia in 1992, following a conflict which cost hundreds of lives.
President Saakashvili has been pressing for the return of South Ossetia and fellow rebel province Abkhazia to Tbilisi's control since his election in January.
He said on Thursday that civilians in South Ossetia were at risk of "ethnic cleansing".
In an apparently veiled reference to Russia, he also warned against "external forces [planning] to drag Georgia into a large-scale armed conflict on its own territory".