The UN has withdrawn non-essential staff from Sudan's town of Abyei after a day of clashes between government forces and southern former rebels.
UN spokesman Khaled Mansour told the BBC two soldiers had died on each side.
He said the dispute over the status of Abyei could jeopardise a 2005 whole peace deal which ended years of war.
Four Indian oil workers have been taken hostage in Abyei, according to the Indian ambassador. It is not clear who is behind the kidnapping.
"We believe the abductors didn't know they were Indian," Deepak Vohra told the AFP news agency.
"They're in good condition, they're in fine fettle."
The Jem rebel group from the Darfur region, which has in the past kidnapped Chinese oil workers in the nearby Kordofan State, denied responsibility.
Jem on Saturday attacked the capital, Khartoum, and threatened to attack oil installations.
The north-south civil war, separate from the Darfur conflict, is said to have cost the lives of 1.5 million people.
Three years after the signing of a peace deal, an administration is yet to be set up in Abyei, which is claimed by both north and south.
"This is indeed one of the most serious issues facing the Comprehensive Peace Agreement between south and north," Mr Mansour told the BBC's Network Africa programme.
He said because of the dispute the town lacked even the most basic services which made the area a "tinderbox".
As part of the 2005 peace deal, the south is due to vote in 2011 on whether or not to seek independence from the north.
"Everybody's talking about it in the media as a rich oil-rich town, but it's a very poor town and that's why people are on edge."
Deng Kual Deng, a resident of the town, told the BBC that the market area had been hit by mortar fire, but that there had been a lull in fighting overnight.
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