Fighting raged for the second day on Sunday in the Chadian capital after rebels intent on toppling President Idriss Deby battled their way into the city and surrounded his palace and loyalist troops.

Spokesmen for the rebels, who denounce Deby as corrupt and dictatorial, said they allowed a pause in combat overnight to let foreigners evacuate from the oil producing central African country and to give Deby a chance to leave.

But foreign and local residents in the dusty capital said heavy weapons and machine gun fire erupted from before dawn near the palace -- defended by tanks and infantry -- not far from two hotels where several hundred foreigners were sheltered.

"The night was calm but the firing has started up again since about 5 o'clock," an employee at the Novotel hotel told Reuters.

Gabriel Stauring, of the humanitarian action group Stop Genocide Now, said he and other foreigners were at the Meridien hotel, protected by French troops and awaiting evacuation.

"There has been heavy weapons (fire) going in the Palace area. Helicopters have also been involved ... The word is that Deby is still in the palace and fighting back," he told Reuters in an email.

"There has been fighting very close to the hotel, with stray bullet flying over our heads again today."    

France has soldiers and Mirage jets stationed in Chad but says it is remaining neutral in the conflict. It had evacuated around 400 foreigners from N'Djamena since late Saturday, French Defence Minister Herve Morin told French radio.

Authorities in northern Cameroon reported thousands of Chadians and foreign nationals had fled the fighting, crossing south over the river frontier by road. Morin said he believed that Deby's armed forces chief of staff had died in the fighting when rebels moved into the capital in pickup trucks mounted with canon and machine guns. Morin did not name the official.

Chad's former colonial ruler France, the African Union and the United States have all condemned the assault on N'Djamena by an alliance of rebel groups that have fought a guerrilla war against Deby for years.

They failed in their last attempt to seize the capital in 2006. The AU has threatened to kick Chad out of the 53-nation body if the insurgents take power.

The leaders of the Chadian rebels include Timane Erdimi, a former member of Deby's ruling clan, and Mahamat Nouri, a former defence minister. They are among several high-level officials who have defected to the rebels in recent years, accusing Deby of being an autocrat and favouring his family and friends.

They say Deby, a French-trained former fighter pilot who seized power in an eastern revolt in 1990 and won elections in 1996, 2001 and 2006, has squandered the country's oil resources, which are being developed by a US-led oil consortium.

Chad was named the most corrupt country in the world, along with Bangladesh, in Transparency International's Corruption Perceptions Index for 2005.

Deby's government has accused neighbouring Sudan of arming and backing the rebels, who raced west in a column of 300 vehicles from the eastern border with Sudan's Darfur region. It says Khartoum launched the latest Chadian rebel offensive in a bid to block the deployment in eastern Chad of European Union peacekeepers.

The EU said the fighting in the Chadian capital had delayed the deployment of the peace force, which has a United Nations mandate to protect refugees from the conflict in Darfur.

On Sunday, Sudan denied it supported the Chadian rebels and called on all sides to show restraint. "We are not supporting the rebels. We have no connection with them," said Foreign Ministry spokesman Ali al-Sadig. "They started from eastern Chad and they moved to the capital."     Cameroon authorities said thousands of refugees from N'Djamena, including foreign diplomats, had fled to