The Eritrean defence forces earlier unleashed an attack aimed at controlling the right-wing of Ethiopian defence posts but the Ethiopian forces took swift measures not only to foil the attempt but also followed the retreating enemy forces and took full control of a large enemy stronghold known as Geza-Gerlase. Fighting is still continuing as Ethiopian defence forces are engaged in full-scale combat to defend their position and to repel the invasion army.

Government officials on both sides said intense fighting broke out at dawn in the border region of Badme, a theater of conflict during a brief land and air war last year.

Each side accused the other of firing first. Eritrea said the Ethiopian army launched a large-scale attack but had been driven back with hundreds of casualties.

``The Ethiopian offensive was smashed, but the offensive is continuing,'' Eritrean presidential adviser Yermane Gebremeskel told Reuters.

Eritrea's state-owned news agency said hundreds of corpses of Ethiopian soldiers were ``lying everywhere outside their trenches, from which they moved in order to carry out their attack'' and invited foreign observers to visit the battlefield.

It also urged residents of the capital Asmara to stay indoors ``because of expected Ethiopian air attacks.''

Police cars circled the city, sending out the same message on loudspeakers, while the German embassy in Asmara advised its nationals to leave the country.

In the Ethiopian capital Addis Ababa, government spokeswoman Selome Taddesse said the Ethiopian military post in Badme came under heavy attack at dawn but its troops were fighting back.

``Ground forces of the two countries are locked in fierce battle,'' she told Reuters.

A senior diplomatic source in Addis Ababa said the two sides were engaged with ``heavy artillery, tanks and infantry, but no air support yet.''

Both Ethiopia and Eritrea claim sovereignty over Badme, a rocky triangle of sparsely populated land covering about 400 square km (155 square miles) which was occupied by Eritrea during the ground and air war that exploded last May.

Hundreds of soldiers and dozens of civilians were killed in clashes on three main fronts along the 1,000-km (625-mile) border before fighting subsided in mid-June and both sides agreed to a moratorium on cross-border air raids.

Eritrea said there was no fighting on the other two military fronts Saturday, although both armies have reinforced their border positions and there has been sporadic cross-border shelling in recent weeks.

Ethiopia said Friday that Eritrea had bombed the town of Adigrat near the border about 160 km (100 miles) east of Badme.

But Eritrea flatly denied the allegation and said its much larger southern neighbor was trying to justify a military offensive by its own armed forces. There was no independent confirmation of the reported attack on Adigrat.

The United Nations, the U.S. government and the Organization of African Unity (OAU) have all tried but failed to resolve the conflict despite intense shuttle diplomacy between Asmara and Addis Ababa in recent weeks.

A press release issued by the Ethiopian Airlines said "to guarantee smooth operation out of Nairobi, all the necessary arrangements are in place as part of the airline's contingency plan."

It said, "as all Ethiopian flights will converge in Nairobi, Ethiopian Airlines will ensure that all passengers will connect their onward flights and reach their planned destination with minimum inconvenience."

"For passengers travelling to and/or from Addis Ababa flights from Addis Ababa to Nairobi have been arranged," it said.

The press release was issued after an announcement made by the Office of Ethiopian Government Spokesperson Selome Taddesse Saturday morning. The Office said Eritrean army launched a full-scale attack on Ethiopian troops at the Badme front" at dawn of Saturday and the Ethiopian defense forces are currently engaged in full-scale combat to defend their positions and to repel "Eritrea's invading army".

Ethiopia says ferocious fighting is under way between its forces and those of rival Eritrea along their disputed border. A government spokesman says Eritrea initiated the fighting with a dawn attack.

Eritrea says Ethiopia has been searching for a pretext to end a U-S-brokered moratorium on air strikes and to attack Eritrea.

Tensions between the two countries have been high since May, when they went to war over a boundary dispute.

Eritrea fought a 30-year war against Ethiopia and was granted independence in 1993, but the border between the two countries was never officially declared.