SOUTH Sudanese rebels said they have taken control of the capital of oil-producing Upper Nile state in the first fighting in a major town since rebels and the government signed a ceasefire in January.

The Juba government confirmed an assault was launched but denied rebels controlled the town 400 miles north of the national capital Juba. It is also located on the fringes of one country's main oil-producing areas.

The clashes will fuel concerns over the security of South Sudan's northern oil fields - an economic lifeline for the world's newest state - and raise pressure on both camps to revive stalled peace talks in neighbouring Ethiopia.

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Gathoth Gatkuoth, commander for rebel forces in Upper Nile who is a close ally of former vice-president Riek Machar, said his forces struck Malakal yesterday and swiftly retook the dusty market town.

"The rebels have violated the ceasefire and attacked Malakal this morning," Philip Aguer, a spokesman for the government army said, denying the town had fallen.

Mr Aguer said fighting continued in Malakal although communication had been lost with government forces.

The rebel move on the town may be aimed at strengthening its hand before a second round of peace talks. Malakal first fell to rebels after fighting broke out in mid-December before government forces recaptured it last month.