By Loucoumane Coulibaly and Charles Bamba
ABIDJAN/BOUAKE, Ivory Coast (Reuters) - Rebels controlling northern Ivory Coast have seized a town in government territory and said on Friday they were still advancing, raising the prospects of a return to open war.
Loyalists of Laurent Gbagbo, clinging to power after an election most of the world says he lost, confirmed the fall of Zouan-Hounien in an overnight attack and said they would fight to take it back.
"We're in the process of re-organising ourselves," Yao Yao, head of operations of the pro-Gbagbo Front for the Liberation of the Greater West militia told Reuters by phone from the region.
The small, remote town lies in western Ivory Coast near the forested border with Liberia and is not on a key axis, but the fighting there marks a major escalation.
United Nations Secretary-General Ban Ki-moon warned that clashes this week in the main city, Abidjan, and in the west have taken the world's top cocoa grower closer to the brink of a new civil war.
Rebel spokesman Ouattara Seydou said the New Forces had been attacked from Zouan-Hounien and were moving south to another town held by Gbagbo loyalists.
Ivory Coast's spiral back towards a war fuelled by ethnic animosities follows an election last November which Gbagbo's rival Alassane Ouattara is almost universally recognised to have won.
Gbagbo, in power for more than a decade, has refused to leave the presidency of once prosperous Ivory Coast, which has been split between north and south since a 2002-03 war.
He has so far retained the support of most of the armed forces and, in Abidjan, can also rely on the "Young Patriots," often violent youth supporters who erected roadblocks and set fire to buses and taxis on Friday.
U.N. WARNING
Their leader Charles Ble Goude on Friday called on people to set up "self-defence" units to protect themselves from the rebels, and ordered them to block U.N. peacekeepers, who are protecting Ouattara in a lagoon-side hotel.
Any such move risks pitting U.N. peacekeepers against unarmed but hostile civilians. In a statement issued by his spokesperson, Ban Ki-moon called for restraint on both sides while African Union mediators try to resolve the crisis.
Diplomacy has made no headway so far.
The spreading violence has killed more than 300 people according to the United Nations, but diplomats think that figure hugely understated because the military rarely discloses its casualties or civilians killed by soldiers.
The threat to supplies has pushed cocoa futures to their highest in more than 30 years.
Gun battles raged overnight in the Abobo neighbourhood of the main city of Abidjan where insurgents, dubbed by local media the "invisible commandos," have risen up against Gbagbo.
"Gun shots were echoing everywhere throughout the night and there was heavy arms fire," said resident Souala Tiemoko as hundreds of people marched along the road out of the district of quarter of a million, salvaging whatever belongings they could.
Gbagbo's spokesman Ahoua Don Mello says the gunmen in Abobo are rebels who have come down from the north. Ouattara's parallel government says they are civilians and army defectors.
Fleeing businesses, and economic sanctions by the European Union and United States aiming to squeeze Gbagbo are fast wrecking the economy of this once prosperous nation.
Ivory Coast's 80,000 barrel per day SIR refinery, a target of Western sanctions, said on Friday it was operating "at a minimum" and is struggling to secure crude oil.
The U.N. refugee agency said it had reports that the number of people crossing into neighbouring Liberia had jumped from around 100 per day to 5,000 after the latest clashes in western Ivory Coast.
(Additional reporting by Ange Aboa, Luc Gnago and Tim Cocks; writing by David Lewis and Tim Cocks; Editing by Matthew Tostevin)
