Some 6,000 Bhutanese troops have been deployed in the offensive
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Bhutanese troops have captured seven senior Indian rebel leaders during fierce fighting, officials in the Himalayan kingdom say.
Five other leaders, including the founder of a rebel group, have died fighting the troops in southern Bhutan.
More than 130 people have died since the Bhutanese army launched its first offensive against three Indian rebel groups on Monday.
The rebels have for years used Bhutan as a base to strike against India.
All the senior rebel leaders killed and captured in the latest fighting belonged to the United Liberation Front of Assam (Ulfa), a Bhutanese military official told the BBC.
One of the dead rebels is the founder of (Ulfa), Bhimkanta Buragohain.
He suffered serious shrapnel injuries and later died of his wounds.
Buragohain, 70, launched the Ulfa in the north-eastern Indian state of Assam in 1979.
Among those arrested is Bening Rabha, who was in charge of the Ulfa bases in Bhutan and a top leader of the group's military wing.
Senior leaders Apruba Deka, Satish Hazarika and Ranjit Hazarika are reported to have been killed.
Bhutan has rejected an offer by the rebel groups to move out of their bases if the army operation against them is halted.
Handing over
"Troops have arrested more than 150 rebels, including some leaders, and many more are expected to surrender," a Bhutanese official said.
The Royal Bhutan Army has started handing over the rebels to India, the Indian army chief said.
"The first batch of seven arrested militants has been handed over. The rest will follow," army chief Nirmal Chand Vij told BBC.
The three rebel groups have called for a two-day strike beginning Saturday demanding the return of the bodies of their fighters to the families.
A joint statement by the groups said the strike would be "indefinite" if the bodies of the fighters were not returned.
A rebel group in the north-eastern state of Tripura told the BBC that they would be sending 100 fighters to join the rebels fighting Bhutanese forces as a "mark of solidarity".
The group All Tripura Tiger Force (ATTF) has shared a close relationship with Ulfa.
The Red Cross is sending a team to southern Bhutan to explore the situation after reports that rebel family members were trapped in the fighting.
Ulfa earlier told the BBC that it had appealed to the Red Cross to intervene to protect women and children.
The three rebel groups involved in the fighting are Ulfa, the National Democratic Front of Bodoland (NDFB) and the Kamtapur Liberation Organisation (KLO).
Ulfa is fighting for Assam's independence from India while the NDFB and the KLO are fighting for separate tribal homelands.
About 6,000 Bhutanese troops have destroyed almost all of the 30 rebel camps in the country during the offensive, officials say.
The camps were said to have sheltered about 3,000 rebels.
Indian troops have been deployed on the country's border with Bhutan to prevent rebels from fleeing into India.
"We are sealing the border on our side so that anyone who is trying to escape this side can be apprehended," said the Indian army chief.