"While respecting the territorial integrity of Iraq, Turkey will not shy away from paying whatever price is necessary to protect its rights, its laws, its indivisible unity and its citizens," the statement said.
Earlier, Vecdi Gonul, the Turkish defence minister, said a cross-border incursion into northern Iraq was on the table, but ruled out an imminent move.
"I think it is pretty difficult to say troops shouldn't [invade] when the Turkish soldiers are being killed, and their villages attacked"
Celtic, Karlstad, Sweden
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"There are plans to cross the border" but "not urgently", he told reporters in Kiev, after talks with Robert Gates, the US defence secretary.
The US, which opposes any Turkish unilateral military action, strongly condemned the latest violence in Turkey's southeast and pledged co-operation with Ankara against PKK rebels.
"These attacks are unacceptable and must stop now. Attacks from Iraqi territory need to be dealt with swiftly by the Iraqi government and Kurdish regional authorities," Gordon Johndroe, a spokesman for George Bush, the US president, said.
Al Jazeera's Barnaby Phillips in Silopi, Turkey, said the situation along the border was more tense than ever.
"The question is whether Turkey's soldiers and politicians feel as though they have now been pushed too far and that they must cross into northern Iraq."
Baghdad denounces PKK
In the Iraqi capital, Nuri al-Maliki, the Iraqi prime minister, denounced the PKK attack as a "terrorist operation" in a written statement, but just hours before that, the Iraqi parliament backed a motion condemning Ankara's threat of incursions.
|Barzani, left, says Kurds would defend |
themselves if Kurdistan is attacked [AFP]
"Iraq's parliament unanimously votes to condemn the threat of using force to solve the dispute. It feels that the Turkish parliament's decision to use force does not boost bilateral relations," the motion said.
Iraqi Kurdish leaders said they would rebuff any attack on their territory.
Al Jazeera's Hoda Abdel-Hamid, reporting from northern Iraq, said: "The position in general in the Kurdish region is that they want to keep out of this fight.
"However, they do say if Turkey comes into northern Iraq ... they won't sit there idle watching Turkish tanks rolling through their streets and through their mountains."
Massoud Barzani, the Kurdish leader of the largely autonomous northern Iraq region, told reporters: "We are not going to be caught up in the PKK and Turkish war, but if Kurdistan region is targeted, then we are going to defend our citizens."
Speaking after a meeting with Jalal Talabani, the Iraqi president, he ruled out handing over PKK leaders to Ankara.
Talabani reiterated Barzani's comments saying that the handover of PKK leaders "was a dream that will never be realised".
Meanwhile, in Turkey, hundreds of people spilled to the streets in several cities to protest against PKK fighters.
Nearly 1,000 demonstrators carrying Turkish flags gathered in Istanbul's central Taksim area, chanting slogans against Abdullah Ocalan, the jailed PKK leader.
Sunday's clashes close to the Iraqi border came four days after Turkey's parliament authorised cross-border raids against the PKK.
A PKK official told Al Jazeera that it attacked Turkish forces as they attempted to enter Iraq, though earlier the group claimed Turkish troops had already crossed the border.
Separately, a PKK spokesman told The Associated Press that a group of fighters killed and captured a number of Turkish forces during clashes about 70km inside Turkish territory.
"The PKK fighters were in a defensive position when they killed and injured a number of Turkish soldiers and captured another number," the spokesman, Abdul-Rahman al-Chadarchi, said without elaborating.
A statement by al-Maliki's office pledged to do everything it could to secure the release of hostages.
The Turkish military said it had launched an operation to catch the Kurdish fighters, with troops monitoring possible escape routes and shelling 63 "possible targets".
Ankara says about 3,500 PKK fighters use bases in the mountainous region across the nearby border with the autonomous Kurdish region in northern Iraq to attack Turkish targets.
The PKK wants autonomy for Turkey's predominantly Kurdish southeast and more than 30,000 people have been killed since they began their fight in 1984.