South Sudan's government and rebels were set to start New Year's Day peace talks in Ethiopia's capital, Addis Ababa, to thrash out details of a ceasefire to end more than two weeks of ethnic bloodletting in the world's newest state, mediators said.

Delegations from both sides would arrive later on Wednesday, said regional bloc IGAD, as South Sudan's government acknowledged it had lost the key town of Bor in the latest clash with militias loyal to former Vice President Riek Machar.

Government troops had made a "tactical retreat" to barracks 3 km away on Tuesday, said Nhial Majak Nhial, mayor of Bor, the capital of Jonglei state, which has untapped oil reserves and was the site of an ethnic massacre in 1991.

"I'm worried that the continued fighting in Bor might scupper the start of these talks," said Ethiopian Foreign Minister Tedros Adhanom, who is chairman of the East African bloc the Intergovernmental Authority on Development (IGAD) that is mediating.

IGAD said both sides would name teams of negotiators to agree on ways to roll out and monitor the ceasefire, in a bid to end the fighting that has killed at least 1,000, unsettled oil markets and raised fears of a civil war in a fragile region.

"We don't want to expose the people of South Sudan to a senseless war," South Sudan's Foreign Minister Barnaba Marial Benjamin said on a government Twitter feed on Wednesday.

The government and rebels agreed to start talks under mounting pressure from regional and Western powers.

Washington, the United Nations and South Sudan's neighbors played a central role in negotiations that ended decades of civil war with Sudan to the north and led to the secession of South Sudan in 2011, and have been scrambling to stem the latest violence.

South Sudan holds the third-largest oil reserves in sub-Saharan Africa after Angola and Nigeria, according to BP, but remains one of the continent's least developed countries.

President Salva Kiir has accused his long-term political rival Machar, who he sacked in July, of starting the fighting in a bid to seize power.

Clashes between soldiers erupted on December 15 in the national capital Juba. The violence quickly spread to oil-producing areas, dividing the country along the ethnic lines of Machar's Nuer group and Kiir's Dinkas.

Machar has denied the charge, but he has taken to the bush and has acknowledged leading soldiers battling the government.

The White House upped the pressure late on Tuesday, saying it would deny support to any group that seized power by force.

"We will hold leaders responsible for the conduct of their forces and work to ensure accountability for atrocities and war crimes," said spokeswoman Caitlin Hayden.

The United Nations Mission in South Sudan said ethnic-based atrocities, often carried out against civilians by uniformed men, have taken place across the country.

Medical charity Medecins Sans Frontieres (MSF) said about 70,000 civilians had fled Bor and sought refuge in the town of Awerial in neighboring Lakes state, with no access to food, clean water or shelter. Others were hiding in swamps.

"Living conditions are verging on the catastrophic," MSF said.

Fighting across the country has displaced at least 180,000 people, according to the United Nations.

The clashes have revived memories of the factionalism in the 1990s within the Sudan People's Liberation Movement(SPLM), the now ruling group that fought Sudan's army in the civil war. Machar led a splinter faction at the time and Nuer fighters loyal to him massacred Dinkas in Bor.-Reuters