South Ossetia ordered a full mobilisation after the violence
Separatists in Georgia's breakaway South Ossetia region say at least two people were killed when Georgian forces started shelling the region overnight.
Eleven others were wounded in the bombardment, officials said. Shooting broke out after the shelling.
South Ossetia's breakaway government ordered a full mobilisation in response, a spokesman said.
Georgian authorities blamed the separatist forces, saying they had attacked a Georgian checkpoint.
The Organisation for Security and Cooperation in Europe expressed "profound concern" at the violence.
Russia's foreign minister did the same, adding that Georgia should "sign a legally binding document guaranteeing non-aggression".
South Ossetia is one of two Georgian regions controlled by separatists with close links to Russia.
The other is Abkhazia, where tensions have soared recently, with both sides accusing the other of a military build-up.
South Ossetian officials say Georgia shelled the region's main city, Tskhinvali, and nearby villages overnight - breaching a ceasefire agreed by the two sides.
"A general mobilisation has been ordered," spokeswoman Irina Gagloyeva told AFP news agency, saying heavy weaponry would be deployed if necessary.
She said two people had been killed in the shelling, revising an earlier figure of three.
Georgian authorities say they were forced to return fire after separatist militiamen attacked Georgian-controlled territory in the region.
On Thursday they accused the separatists of staging a roadside bomb attack on the Georgian government's representative in South Ossetia, while the separatists accused the Georgians of killing a local police chief.
Georgia, which is seeking to restore its authority in South Ossetia and Abkhazia, accuses Russia of aiming to absorb the regions.
Moscow has kept a peacekeeping force in both provinces under an agreement made following the wars of the 1990s, when they broke away from Tbilisi.
There are around 2,000 Russians posted in Abkhazia, and about 1,000 in South Ossetia.
Tensions between Russia and Georgia have flared up recently, despite Russia lifting economic sanctions against Georgia earlier this month.