France has intensified its air raids to target training camps at the heart of the area seized by rebels in April, and has poured hundreds of troops into the capital Bamako. Planes were in action over the weekend and again yesterday.
The country wants to end the extremist Islamist domination of northern Mali, which it fears could act as a launchpad for attacks on the West and a base for co-ordination with al Qaeda in Yemen, Somalia and North Africa.
Launching a counter-attack far to the south-west of recent fighting, Islamists clashed with government forces inside the town of Diabaly, just 220 miles north-east of Bamako.
Locals said rebels had entered from the north overnight, coming from the border region with Mauritania where al Qaeda's North African wing AQIM has camps. The French Defence Ministry said the rebels had overrun the town.
A spokesman for the MUJWA Islamist group, one of the main rebel factions, promised French citizens would pay for the air-strikes on their stronghold of Gao.
Dozens of Islamist fighters were killed when rockets struck a fuel depot and a customs house being used as headquarters.
The spokesman said: "France has opened the gates of hell for all the French. She has fallen into a trap more dangerous than Iraq, Afghanistan or Somalia."
Paris said one of its pilots was killed on Friday when rebels shot at his helicopter. Last week's strikes stopped the Islamists from seizing the capital Bamako, said France, and had been at the request of the Mali government.
President Francois Hollande says the aim is to support a mission by the 15-nation West African bloc ECOWAS to retake the north, mandated by a UN resolution.
Under pressure from Paris, several states said they hoped to have soldiers on the ground this week. ECOWAS military chiefs will meet in Bamako today, although Nigeria, which is due to lead the mission, said training and deploying troops will take time.
Mali gained a reputation as a democracy, but that faltered after a military coup in March created a power vacuum for the rebellion.
Mr Hollande's move raises the threat level for eight French hostages held by al Qaeda allies in the Sahara and 30,000 French expats living in neighbouring states. France has tightened security at home.
France convened a UN Security Council meeting yesterday to discuss Mali. Many analysts have warned the whole UN-mandated Mali mission is unlikely to succeed if French action is not followed up by a deployment of ECOWAS forces, with support from NATO.
The US has said it would share intelligence and would consider deploying unmanned drones.