Sudan's armed forces have reached the outskirts of a key oil town occupied by South Sudan earlier this week during days of clashes in the contested Heglig border region, according to a Sudanese military spokesman.
"We are now on the outskirts of Heglig town," Al-Sawarmi Khalid Saad told reporters in Khartoum on Friday. "The armed forces are advancing toward Heglig town."
He said he expected the situation in the town, which accounts for half of Sudan's oil production, to be resolved "within hours", and said South Sudan had tried to but failed to gain control of all of the region of Southern Kordofan.
Al Jazeera's Nazanine Moshiri, reporting from Juba, the capital of South Sudan, said a spokesman there had told her Sudanese forces were about 30kms from Heglig and that South Sudanese would defend themselves if they attempted to take back the town.
"This could end up becoming a full-blown conflict," our correspondent said.
World powers and the United Nations have urged restraint after the latest round of heavy fighting that broke out on Tuesday with waves of aerial bombardment hitting the South, whose troops captured the Heglig oil region.
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The African Union denounced the occupation as illegal and urged the two sides to avert a "disastrous" war.
Oil production halted
Fighting in Heglig has halted oil production amounting to about half of Sudan's 115,000 barrel-a-day output and damaged facilities, officials say.
Speaking in Nairobi, Pagan Amum, South Sudan's lead negotiator at talks to resolve the dispute with Sudan, said his country was ready to withdraw under a UN-mediated plan.
"On the ground, we are ready to withdraw from Heglig as a contested area ... provided that the United Nations deploy a UN force in these contested areas and the UN also establish a monitoring mechanism to monitor the implementation of the cessation of hostilities agreement," he told reporters.
The south seceded from Khartoum's rule last year but the two sides have not agreed on issues including the position of the border, the division of the national debt and the status of citizens in each other's territory.
Amum said there were seven disputed areas and called for international arbitration to settle the issues.
Blow to the economy
The loss of Heglig's oil output is another blow to Sudan's economy, which is already struggling with rising food prices and a currency depreciating on the black market.
"Resumption of oil in that area will only come when the UN deploy their forces between the two countries and in the disputed areas and when the two countries reach agreement to resume oil production," Amum said.
Landlocked South Sudan shut down its own 350,000 barrel-per-day oil output in January in a row over how much it should pay to export crude via pipelines and facilities in Sudan.
Oil accounted for about 98 per cent of the new nation's state revenues and officials have been scrambling for ways to make up for the loss.
In Juba, about 200 people demonstrated at a government-organised protest against Sudan and in support of the occupation of Heglig, holding banners which read: "The people want the army to be in Heglig" and "They bomb children and women".