Aljazeera reported on Thursday that Hezbollah fighters were engaged in fierce clashes with Israeli troops in the Christian town about 8km inside Lebanon following reports that Israeli troops were moving on foot through the town.
The historic market town is in a strategic position on high ground near the Litani river and is the largest town in the south Bekaa valley.
A resident told Reuters that Hezbollah fighters hit two Israeli tanks near the town during fierce clashes.
"I can see two tanks burning some 500m from Marjayoun," the resident said by telephone.
Hezbollah said in a statement it had destroyed seven Israeli tanks, killing or wounding their crews, in fighting in the area.
"There is heavy gunfire that started around 3.30am and there is a lot of shelling on the outskirts of the town"
Fouad al-Hamra, head of Marjayoun municipality
Earlier, a local Marjayoun official told Aljazeera there had been gunfire and shelling before the Israelis moved in.
"There is heavy gunfire that started around 3.30am (0030 GMT) and there is a lot of shelling on the outskirts of the town. A gas station was burned and a shell fell on a house," said Fouad al-Hamra, the head of the municipality.
"They reached here around 3.30am," he said by telephone. "We heard the sounds of tanks and now I can see a big fire on the eastern outskirts of the town."
The push towards Marjayoun came hours after a column of Israeli tanks and armoured vehicles crossed into southern Lebanon on Wednesday evening from the Israeli town of Metulla, invading under covering artillery fire and air strikes, witnesses in the nearby village of Bourj al-Mulouk said.
Hezbollah said on Thursday that its fighters were engaged in "a violent confrontation" with Israeli forces whose tanks tried to advance towards Khiam, the group's Al-Manar television reported.
Marjayoun has been under heavy
Israel Army Radio reported heavy battles in south Lebanese villages across from Israel's Galilee panhandle, hard hit by rockets.
Chance to diplomacy
The battles in Marjayoun took place hours before a senior Israeli official announced that the military would hold off expanding its ground offensive to give diplomacy a chance.
Cabinet minister Rafi Eitan confirmed on Thursday the government's decision to wait after Israel's security cabinet approved on Wednesday the deeper push into Lebanon.
Eitan told Israel Radio: "There are diplomatic considerations. There is still a chance that an international force will arrive in the area. We have no interest in being in south Lebanon. We have an interest in peace on our borders."
About 10,000 Israeli soldiers have been operating within a six-kilometre-deep border strip in southern Lebanon.