The Lebanese army launched artillery shells at a Palestinian refugee camp on Tuesday and militants barricaded inside fired mortars in the heaviest fighting there in a week.

As dusk fell, the rattle of heavy machine gun fire was also heard at the Nahr al-Bared camp - the base of militant group Fatah al-Islam which is surrounded by the Lebanese army.

"Clashes are expected," a military source said. "It's an open front." Smoke was seen rising from buildings inside the camp, a maze of alleyways which was home to 40,000 before the fighting began. Thousands of Palestinians have fled.

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Earlier Tuesday, sporadic fighting erupted between the two sides, with no sign of progress in efforts to mediate an end to the standoff.

The clashes at the Mediterranean camp in north Lebanon occurred while scores of Palestinian refugees in the Beddawi camp, who had fled there from the nearby Nahr al-Bared camp, held a protest to demand a permanent cease-fire that would enable them to return home.

Intermittent but deadly clashes between Lebanese troops and the al-Qaida-inspired Sunni Islamist militants of Fatah al-Islam have punctured a fragile truce that was enforced last week to allow the camp's 40,000 refugees to flee due to lack of food, water and power.

One Lebanese soldier was killed in clashes early on Tuesday, bringing the total death toll in Lebanon's worst internal fighting since the 1975-1990 civil war to at least 79 people - 34 soldiers, 27 militants and 18 civilians.

The Lebanese government has demanded that the militants surrender and face justice but Palestinian leaders mediating in the standoff say the Fatah al-Islam group refuses to hand over their fighters.

The Palestinian leaders' plans also include a permanent cease-fire in the camp, the pullback of Fatah al-Islam fighters, and the deployment of a Palestinian force to oversee the truce.

"There is no progress in the efforts to find a solution. There is a need to move quickly but that is not happening," a Palestinian mediator, who asked not to be identified, said.

He said the crisis could deepen if it not resolved soon because the militants and their sleeper cells "will get the chance to catch their breath and launch attacks elsewhere. The Lebanese government must find a way out".

The government Lebanese government has played down an immediate military
solution to the standoff and is reluctant to pursue the option of the army's storming the camp as it could trigger violence at one or more of the 11 other refugee camps in the country.

The army is banned from entering the camps, home to some 400,000Palestinians, under a 1969 Arab deal.

Members of Lebanon's anti-Syrian cabinet have described Fatah al-Islam as a tool of Syrian intelligence, though Damascus denies any links to the group.

"The first concern for the government and army is to remove the Palestinian civilians from inside the camp. After that the army will deal with Fatah al-Islam," Saad al-Hariri, head of the ruling government coalition bloc, told the pan-Arab al-Sharq al-Awsat newspaper.

"The priority now is to remove the civilians and keep them away from danger ... There will be no negotiations with those terrorists that came to Lebanon to carry out the orders of the Syrian intelligence."

The Lebanese authorities say Fatah al-Islam members include Arabs from Saudi Arabia, Algeria, Tunisia, Syria and Lebanon.