The BBC's Andrew Harding: "The Kremlin is still sounding confident about its ability to crush the rebellion"

But he said there was no need for a state of emergency despite continued fighting between Russian troops and Islamic insurgents in the southern Russian republic.

Russia's interior ministry said on Monday that some 400 Muslim fighters had been killed in 10 days of clashes.

The Russian president said he had full confidence in his security ministers, the Itar-Tass news agency reported.

"For as long as I have been president, there has never been such a team of power-wielders - united, strong and organised.

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"The atmosphere in our country is calm and normal. There will be no extraordinary measures," he told reporters.

His words were echoed by Prime Minister Vladimir Putin who said he would fight to preserve Russia's territorial integrity despite the wave of violence.

'Government formed'

Reports from the Chechen capital, Grozny, said the Islamic separatists had announced the formation of a government in Dagestan.

They asked Serazhdin Ramzanov - described as a member of the assembly of the Muslim peoples of Dagestan and Chechnya - to put together a cabinet for the "the Islamic State of Dagestan".

In a separate development, two Polish biologists were reported kidnapped, along with two Dagestanis who were accompanying them.

Their car was found abandoned on a bridge in a mountainous district near the border with Chechnya - an area which has become notorious for kidnappings in recent years.

Fighting began on 7 August when Muslim separatists crossed from the breakaway republic of Chechnya and seized several mountain villages in Dagestan, proclaiming independence.

Russia responded with a major offensive against the rebels.

Thousands of villagers have fled the recent fighting

Its air campaign continued on Monday against three mountain villages where the Islamic militants are believed to be entrenched.

Reports said Su-25 jets and Mi-8 helicopters launched strikes on the villages at 0600 local time and continued attacking throughout the morning.

Plumes of smoke were visible from Botlikh, the nearby town where forward Russian forces are based.

A Russian interior ministry spokesman in the Dagestani capital, Makhachkala, said Russian forces launched 18 rocket strikes against positions occupied by the rebels early on Monday.

'Rebels leaving'

Russian troops are reported to have mined roads around the border towns of Ansalta, Rokhota, Shadroda, Tondo and Riklani - which could be used by the rebels during a possible retreat into Chechnya.

Basayev: Looking towards phase two of campaign

Radio Russia said a large-scale operation to destroy the Islamist forces was under way and that many of the rebels were leaving the villages they had captured and were returning to Chechnya.

But the rebels said 20 Russian soldiers had been killed in Monday's fighting and another two had been taken prisoner.

Chechen warlord Shamil Basayev, who is leading the insurgents, was planning to meet top aides in the Botlikh region, the AFP news agency reported.

"We are going to discuss the second stage of the military operation. This stage is the most difficult and will take longer," he said.

The fighting marks the worst spell of violence inside Russia since the 1994-96 Chechen war for independence, in which some 80,000 people died.

The BBC's Andrew Harding in Moscow says Russia may be determined not to get dragged into another long war like the conflict in Chechnya.

But there is no easy way to deal with Islamic militants based inside Chechnya, who seem determined to challenge Russian authority throughout the region.

Chechnya declared a state of emergency on Sunday and imposed a night-time curfew because of the fighting in Dagestan. Grozny has denied that Chechen fighters were involved with the rebels.

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