South Sudan's army says it has regained control of the rebel-held town of Bentiu, handing the government control of Unity State's oilfields where production had been halted.
The army had earlier announced it was mobilising thousands of additional troops as it battled to recapture two rebel-held cities, including Bentiu, although regional mediators were still hopeful a ceasefire could be reached.
"It happened this afternoon at 2.30pm," Philip Aguer, army spokesman, told Reuters news agency on Friday.
"When you control Bentiu, you control all the oil fields in Unity state."
Forces in Bentiu loyal to former Vice President Riek Machar had been holding off the army of President Salva Kiir for several days, leaving it ransacked and emptied of its civilian population.
Machar confirmed rebel forces had lost control of the northern oil hub, but pledged his fighters would continue their battle against the government.
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"We withdrew from Bentiu, but it was to avoid fighting in the streets and save civilian lives. We fight on, we will continue the battle," Machar told AFP by satellite telephone from an undisclosed location in the country.
He said the rebel side would remain engaged in peace talks that are taking place in Addis Ababa in neighbouring Ethiopia.
"Yes, we are committed," he said, without giving any indication if he was willing to agree to an immediate and unconditional ceasefire.
Speaking in Addis Ababa, a rebel military spokesman described the loss of Bentiu as a "temporary setback".
"Our forces made a tactical withdrawal to avoid civilian casualties," Lul Ruai Koang said.
"The government does not have the capacity to defeat us militarily," he added, accusing the South Sudanese government of "bringing in mercenaries" from neighbouring Uganda and the Darfur region of Sudan.
He also said rebels still controlled Unity State's oil infrastructure outside Bentiu.
Fierce battles have also continued around Bor, another rebel-held town in central South Sudan that has already changed hands three times since the conflict began nearly a month ago.
In the capital Juba, the government's allies from several regions say they are in the process of calling up thousands of former soldiers to shore up the South Sudan army.
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"We have to mobilise all SPLA soldiers, all former soldiers who were in the Sudanese army," Clement Wani Konga, governor of Central Equatoria State, said, adding 3,000 extra troops had been found in his region alone and a further 12,000 were expected to soon be armed and ready.
Nevertheless, in Addis Ababa, where the peace negotiations are being held under the aegis of the East African regional bloc IGAD, the chief mediator told AFP news agency he was still optimistic.
"If you ask me on the possibilities of signing, I am very optimistic ... because we have now come a long way in establishing understanding between the parties," Seyoum Mesfin said.
He said he expected a ceasefire in "the shortest possible time".
Against this backdrop, the UN says it believes that "very substantially in excess" of 1,000 people have been killed in the South Sudan civil war.
It also says that nearly a quarter of a million people have fled their homes, many of them fleeing a wave of ethnic violence between Kiir's majority Dinka tribe and Machar's Nuer.
For its part, the US, which was instrumental in helping South Sudan win independence from Sudan in 2011, has said it fears implosion of the young country and is urging the two warring factions to immediately agree to a truce .