REBELS in Congo said on Friday they had seized the eastern town of Bunagana on the border with Uganda after days of fierce fighting with government troops during which a U.N. peacekeeper was killed and thousands of residents displaced.

More than 2,000 civilians had crossed the border into Uganda the past few days to escape the bloodshed, at least 2,200 more had been uprooted and 600 Congolese soldiers had also fled over the frontier, Ugandan Red Cross and military officials said.

Congo's north Kivu province has been swept by violence since late March after hundreds of ex-rebels defected from the army in support of a rebellious general, Bosco Ntaganda, who is wanted by the international crimes tribunal on war crimes charges.

The mutiny risks dragging the vast, loosely governed central African state back into war and damaging fragile relations with Rwanda, which has repeatedly denied allegations that the rebels are receiving cross-border support.

The resurgence of fighting in eastern Congo has displaced over 200,000 people since April, according to U.N. estimates.

"The city of Bunagana and its surroundings are now under the control of our forces after a failed counter-offensive against our positions by the government troops," said Colonel Makenga Sultani, coordinator of the so-called M23 movement.

In a statement, Sultani urged several thousand residents who had fled into Uganda to return home and the U.N. peacekeeping mission to remain impartial in the conflict.

A spokesman for MONUSCO, the U.N. mission in mineral-rich Congo, said an Indian U.N. peacekeeper was killed during heavy fighting on Thursday, but could not confirm whether the rebels had taken the town.