Serbia ordered its troops on full alert on Tuesday after police in neighbouring Kosovo mounted an anti-smuggling operation in a northern region of the country populated mainly by Serbs.
The moves fueled a rise in tension in four Serb-majority municipalities in the region, which remains largely outside control of Pristina and pledges allegiance to Belgrade.
Belgrade saw the Kosovan police action as an attempt by Pristina authorities to take control of northern parts of Kosovo which border Serbia.
Kosovan police said they had arrested dozens of officers, including ethnic Serbs, accused of smuggling goods into the country.
Police had faced "armed resistance" and one policeman was wounded, they said. Serbian state RTS TV reported two Serbs were wounded during the police action.
At an urgent address to the parliament, Serbia's President Aleksandar Vucic said Belgrade will "seek to preserve peace and stability" but at the same time remained ready to react.
"As the supreme commander, I have placed our army units in full combat readiness, if there is any serious endangering of order and people in the northern Kosovo, they will protect our people," he told deputies.
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A day earlier, Vucic had said Serbia had lost control over Kosovo and called for a compromise solution between Belgrade and Pristina to end the frozen conflict.
Majority-Albanian Kosovo declared independence in 2008, almost a decade after NATO air strikes wrested control of the territory away from Belgrade to end a counter-insurgency campaign by Serbian security forces.
But Serbia, which under its constitution considers Kosovo an integral part of its territory, has been blocking Kosovo from membership of international institutions including Interpol and UNESCO. It also still provides financial aid to Serbs in Kosovo.
Emergency sirens sounded in the Serb part of Mitrovica and people gathered in the town's main square but no incidents occurred, witnesses said.
Kosovo police said their investigation had been launched months ago.
They declined to give the number of people arrested but said the operation was going on throughout the country not only in the north. Albanians, Serbs, Bosniaks were among those detained.
Smuggling is rampant in the area and it further increased since Kosovo last November introduced 100 percent tariffs on goods from Serbia.
"I confirm that the operation is about law enforcement and nothing else. I call Serbs in north to stay calm and respect the law," Kosovo Prime Minister Ramush Haradinaj said.
The NATO peacekeeping force in Kosovo (KFOR) said it was ready to intervene if necessary and urged all parties to remain calm.
"Because of the political sensitivity of the moment...KFOR invites all the parties to deal with the disputes peacefully and responsibly, without any use of force or violence," NATO said.
Russia's Foreign Ministry accused Kosovo of provocation and said Serbians had been arrested.