Karimov said on Saturday that authorities tried to negotiate a peaceful end to protests that have rocked the eastern city of Andijan but troops were provoked when insurgents tried to break through an advancing line of police and soldiers.
He said 10 government troops and many more militants died in fighting in Andijan on Friday.
Reports said that clashes broke out again on Saturday morning as Uzbek troops sought to suppress armed groups, who the previous day had freed prisoners in the country's fourth-largest city.
"They are now dispersed and we are hunting them down," an Uzbek soldier said, as troops fired shells from armoured vehicles and used automatic weapons against the armed groups.
Between 20 and 30 bodies of men and young men could be seen on Saturday in a street near the centre of Andijan following the clashes.
The dead, who were not in military uniform, appeared to have been shot.
They were lying near a cinema, about one kilometre from the regional administration building - the site of a demonstration on Friday that was broken up by soldiers firing above and into the crowd.
Relatives of the victims condemned the government, accusing troops of killing innocent civilians. Witnesses said 200 to 300 people were shot dead on Friday.
Soldiers loyal to Karimov, who has maintained tight control over the Central Asian nation, fired on thousands of demonstrators to put down an uprising that began when armed men freed 2000 inmates from prison, including suspects on trial for alleged "Islamic extremism".
"To accept their [the insurgents] terms would mean that we are setting a precedent that no other country in the world would accept"
The US State Department expressed concern on Friday that members of the Islamic Movement of Uzbekistan, which is on the US list of terrorist groups, were freed.
Karimov said at least 100 people were wounded in the clashes. He did not specify who fired first.
Hundreds of angry protesters gathered on Saturday at the site of the violence, placing six bodies on display from among the scores of people witnesses said were killed in fighting.
Bystanders watched as men covered other bloodied bodies with white shrouds.
Demonstrators, some with tears in their eyes, condemned the government for firing on women and children.
Fleeing the violence, about 6000 Uzbek residents headed on Saturday to the border.
Kyrgyz border guards were awaiting a government decision on whether to allow them in, said Gulmira Borubayeva, a spokeswoman for Kyrgyzstan's border guard service.
Scores of people have been killed
in the violence
Karimov said on Saturday that the authorities tried to negotiate a peaceful way out but will not yield to the protesters' demands, which he described as excessive, for freedom for all their followers across the Fergana Valley.
"To accept their terms would mean that we are setting a precedent that no other country in the world would accept," Karimov told a news conference in the capital, Tashkent.
The Uzbek leader denied that forces would target innocent civilians.
"In Uzbekistan, nobody fights against women, children or the elderly," Karimov said.
He also said the government earlier offered the demonstrators free passage out of the city in buses with their weapons, seized in attacks on a police station and military outpost.
But a protest leader, Kabuljon Parpiyev, said Interior Minister Zakir Almatov did not sound willing to negotiate in a phone call on Friday.
"He said: 'We don't care if 200, 300 or 400 people die. We have force and we will chuck you out of there anyway,'" Parpiyev quoted Almatov as saying.
"Our women and children are dying"
Russian President Vladimir Putin and Karimov spoke by telephone on Saturday, the Kremlin said.
"Both sides expressed concern about the danger of the destabilisation of the situation in the Central Asian region," the Kremlin press service said in a statement.
In Washington, the White House urged restraint by both sides.
"The people of Uzbekistan want to see a more representative and democratic government. But that should come through peaceful means, not through violence," White House spokesman Scott McClellan said on Friday.
Outlawed Islamic group
Earlier on Saturday, soldiers loaded scores of bodies on to four trucks and a bus after blocking friends and relatives from collecting them, witnesses said.
Lutfulo Shamsutdinov, head of the Independent Human Rights Organisation of Uzbekistan, said he saw the bodies of about 200 victims being loaded on to trucks near the square.
Daniyar Akbarov, 24, joined the protests on Saturday after being freed from the prison during the earlier clashes.
"Our women and children are dying," he said, tearfully beating his chest with his fists. Akbarov said he saw at least 300 people killed.
The Fergana Valley is home to
Uzbekistan's Islamic opposition
The focus of the jail break was 23 men charged with membership of a group allegedly allied with the outlawed Islamic party Hizb-ut-Tahrir, which seeks to create a worldwide Islamic state and has been forced underground throughout most of Central Asia and Russia.
Supporters of the 23 men say they were victims of religious repression by Karimov's secular government.
The men are alleged members of Akramia - a group named for their founder, Akram Yuldashev, an Islamic dissident sentenced in 1999 to 17 years in prison for allegedly urging the overthrow of Karimov. He has proclaimed his innocence.
Akramis are considered the backbone of Andijan's small business community, running a medical clinic and pharmacy, as well as working as furniture craftsmen, and providing employment to thousands in the impoverished Fergana Valley, where Islamist sentiment runs high.
Their trial has inspired one of the largest public shows of anger at the government.
The unrest continued on Saturday
In recent weeks, Uzbeks have shown increasing willingness to challenge the leadership in protests, apparently bolstered by the March uprising in Kyrgyzstan that drove out President Askar Akayev and the similar ones in Ukraine and Georgia.
Karimov said people from Kyrgyzstan were among the organisers of the violence in Andijan, and claimed they were trying to repeat the events from the neighbouring country in Uzbekistan.
But Almambet Matubraimov, acting President Kurmanbek Bakiyev's representative in southern Kyrgyzstan, vehemently denied the accusation.