'Stab in the back'
After the signing of the May 2006 peace deal with Khartoum, the movement became part of the government.
Mohamed Bashir, head of the Minnawi office, said: "We consider this a very serious development. Half of Muhajiriya is burnt down."
"Genocide is a crime against humanity as a whole, not just against it's immediate targets. It therefore falls on the world at large to act."
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Mohamed Hamid Dirbeen, a Minnawi military spokesman, said there were many victims in the town, although there was no exact figure on casualties.
He said it was a "stab in the back of the Darfur peace agreement".
Rival rebel groups which did not sign the peace deal confirmed the attack, saying that government troops were massing near Tine town, on the Chadian border, preparing to attack rebel-controlled areas in North Darfur.
African Union peacekeepers are in the region to prevent the ongoing fighting, but a lack of resources has left them vulnerable to attack.
A UN official said Monday's attack and charges by rebels that troops had razed another Darfur town and killed 100 people in retaliation for an attack on African Union troops last month, showed the need to provide a planned UN-AU peacekeeping force with sufficient mobility and firepower.
Jean-Marie Guehenno, head of UN peacekeeping operations, said he was "very concerned" with the escalating violence in Darfur less than three weeks before scheduled peace talks in Libya.
The talks in Tripoli on October 27 are to encourage other factions to sign up to peace.
"At this stage we cannot formally confirm any particular responsibility but it's very troubling that the city which was under the control of the government of Sudan could be burnt down," Guehenno said.
The French diplomat added that the incident "shows the importance of having troops that are very mobile, with the capacity to dominate any situation".
Darfur, in western Sudan, has suffered widespread fighting since 2003, killing about 200,000 people and forcing 2.5 million from their homes.