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UN Security Council envoys have urged north Sudan to "withdraw immediately" its troops from the contested Abyei region on the border with South Sudan.
South Sudan said the Abyei takeover was an act of war, saying civilians and southern soldiers were killed.
South Sudan is due to become independent in July, but Abyei's status remains to be determined after a referendum on its future was shelved.
People in the southern capital of Juba are worried and there is a grim mood on the streets of the capital, the BBC's Peter Martell in South Sudan reports.
The north said it acted after 22 of its men were killed in a southern ambush earlier this week.
Residents flee
"The members of the Security Council call upon the government of Sudan to halt its military operation and withdraw immediately from Abyei town and its environs," the French ambassador to the UN, Gerard Araud, said in Khartoum.
"They condemn the escalatory military operation being undertaken by the Sudanese armed forces. This constitutes a serious violation of the CPA (Comprehensive Peace Agreement in 2005)," Mr Araud said.
He was speaking during a joint news conference with his Russian and US counterparts.Separately, UN Secretary General Ban Ki-moon and EU top diplomat Catherine Ashton condemned the violence in Abyei.
A southern military spokesman earlier told the BBC the north had attacked the area with 5,000 troops, killing civilians and southern soldiers.
Some 20,000 people, almost the whole population of the town, had fled, aid agency Medecins Sans Frontieres (MSF) told the BBC.
Spokesman Raphael Gorgeu said residents had moved to Agok, about 45km (28 miles) south of Abyei, and were fleeing further south.
He said 42 people wounded in the fighting in Abyei had been treated at a local MSF hospital.
Southern 'ambush' criticised
The seizure of Abyei followed two days of skirmishes, artillery fire and at least one air raid.
The BBC's James Copnall in Khartoum says that in a clear demonstration of who is now in charge of Abyei, President Omar al-Bashir issued a decree dismissing the region's administration.
The key question now is whether the north has, in seizing Abyei, fulfilled its objective.
A northern general, Ahmed Abdalla, told the BBC his men would go up to the river at the south of the region of Abyei.
If this is the case, the north will have de facto control over Abyei.
But southerners must be nervous that this is the start of a larger attack.
Some of the south's most valuable oil fields are just over the border from Abyei.
The UN Security Council is in Sudan, and will surely make it clear no-one wants a new north-south war.
But these are dangerous times in Sudan.
Abyei had been governed by a joint body comprising northerners and southerners, led by a southerner.
Southern military spokesman Col Philip Aguer said the north had committed an aggression, and called for the international community to step in."If the international community do not intervene quickly to rescue the situation then this is a complete violation of the comprehensive peace agreement, a complete violation of the ceasefire, and it is a declaration of war by Khartoum," he told the BBC.
The north says it acted after 22 of their men were killed in a southern ambush on Thursday.
The UN said the northern troops who were ambushed were being escorted out of Abyei by UN peacekeepers.
UN officials described the incident as "a criminal attack" and the US called on South Sudan to "account" for the assault.
Washington said the attack was "in direct violation" of the agreement signed by the north and south in January to "remove all unauthorised forces" from Abyei.
South Sudanese forces denied responsibility for the incident.
Tension over Abyei - claimed by a southern group, the Dinka Ngok, and northern nomads, the Misseriya - has been rising since a referendum on its future scheduled for January was postponed.
Since then there have been fears clashes in Abyei could spark a new north-south war, which this latest incident will do nothing to dispel, our correspondent says.
Under the CPA deal, which ended 22 years of civil war, Abyei was granted special status and a joint north-south administration set up in 2008.
Sudan: A country divided
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