Military observers with the joint Georgian-Russian-Ossetian peacekeeping force in South Ossetia "observed the first shots at 09:20 pm" (1720 GMT), the ITAR-TASS news agency quoted spokesman Colonel Nikolai Baranov as saying.

"Fighting is now taking place between the South Ossetian and Georgian sides two to three kilometers north east of Tskhinvali," South Ossetia's capital, Baranov added.

A spokesman for Georgia's interior ministry said earlier Monday two Georgian soldiers had died after coming under mortar and automatic weapons fire from irregular forces from the pro-Russian South Ossetian territory.

The spokesman, Guram Donadze, also claimed that 15 Ossetian fighters were killed in return fire from Georgian forces, but a South Ossetian spokeswoman denied any fatalities.

"Fortunately, no one was killed," in the overnight fighting, South Ossetia spokeswoman Irina Gagloyeva was quoted by the RIA Novosti news agency as saying. However three civilians had been hurt.

RIA Novosti and other Russian news agencies confirmed the deaths on the Georgian side and said that Georgian forces had also fired shells into a district of South Ossetia's main city, Tskhinvali, as well as three other nearby villages.

A spokesman for the joint Georgian-Russian-Ossetian peacekeeping force in South Ossetia was quoted by ITAR-TASS as saying that the firing "came from both sides and involved machine guns, mortars and grenade launchers."

The violence came three days after a ceasefire signed by the conflicting parties as well as Russia and the Organization for Security and Cooperation in Europe (OSCE) went into effect in a renewed drive to defuse the crisis in the region.

The United States on Monday urged all sides in the South Ossetian conflict to show restraint and restore the ceasefire.

The State Department said US diplomats in Washington and Tbilisi were continuing to meet with Russian and Georgian officials in an effort to cool tensions over the breakaway region.

"We want all sides in this to exercise restraint and to implement the (ceasefire) agreement as it's been given," said Tom Casey, a department spokesman. "There are continuing violations of the ceasefire that (are) being reported and that need to stop," he added.

Tensions have soared and clashes have repeatedly broken out in the area over the past two months as Georgia has stepped up pressure to bring separatist regions back under its control -- turning its attention to Ossetia after winning back renegade Adjara in June.

Inhabited mainly by ethnic Ossetians, South Ossetia has enjoyed de facto independence after an armed conflict with Tbilisi following the break-up of the Soviet Union in 1991.

Leaders in South Ossetia have demanded either their own state or else separation from Georgia and direct governance from Moscow.

Prime Minister Zurab Zhvania said Georgia was calling on the international community to step in and help break the deadlock.

Georgia wanted the OSCE executive to hold an urgent meeting in the coming days on the situation in South Ossetia and President Mikhail Saakashvili would talk with other leaders about organizing an international conference on the conflict, he said.

"We are looking for a peaceful resolution," Zhvania said, adding that he was prepared to sit down for talks with South Ossetian separatist leader Eduard Kokoity.

Kokoity offered no indication he was ready for such a meeting.

"Unfortunately, today in Georgia the war party holds the upper hand," Russia's RIA Novosti agency quoted him as saying. "The war party is pushing the Ossetian and Georgian people toward tragedy."

Georgian and Ossetian forces had already traded gunfire and shelling during the night both Saturday and Sunday, when Tbilisi reported seven Georgian soldiers had been wounded in the clashes.

WAR.WIRE