Battle for Tetovo rages

Macedonia security forces on the road to Tetovo

TETOVO, Macedonia (CNN) -- A fierce battle has been raging in Macedonia's second city, dampening hopes that a peace deal could be signed on Monday.

Gunfire was exchanged in clashes in central Tetovo and near an army base in the city while black plumes of smoke could be seen in northern and southwestern suburbs.

The heavy fighting broke out after the National Security Council authorised a fresh onslaught against ethnic Albanian rebel positions.

At least eight people, including three children who suffered shrapnel injuries, were wounded during the fighting.

Of the eight, three are Albanian and five are Macedonians, a hospital spokesman said.

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CNN's Juliette Terzieff reported heavy fighting in Tetovo on Thursday afternoon following on from clashes in the early hours of the morning.

She added the attack by government troops was in no doubt a response to the security council authorisation.

In a late night meeting on Wednesday, it ordered "energetic" offensive measures to counter any threat to government forces.

A rebel commander, codenamed Kalaja, told Reuters news agency: "We set fire to part of the barracks and to an armoured vehicle."

Shaip Bilalli, chief of Tetovo police, told the agency that Macedonia forces were concentrating their attack around the suburb of Teqe where the two sides were separated by a graveyard.

A Macedonian policeman was killed overnight in one clash.

Dusko Sinadinovski died in an attack by rebels in the northwestern village of Ratae, west of Tetovo. Another policeman was injured in the chest.

Private A-1 TV reported one ethnic Albanian killed and two Macedonians seriously injured. The television reports also said the rebels were going from house to house forcing Macedonians to leave.

There was anger in Slav communities on Wednesday after 10 government soldiers were killed in an ethnic Albanian rebel ambush. This came in apparent retaliation for the deaths of five ethnic Albanians on Tuesday.

Overnight hundreds of people took to the streets in three cities including the capital, Skopje in protest against the ambush of the soldiers.

Shops and businesses belonging to ethnic Albanians were wrecked and looted and a mosque in the city of Prilep set on fire.

The rioting came as a breakthrough in peace talks was announced by European Union envoy Francois Leotard. He said officials would formally sign a deal next Monday.

He told eth French Le Monde newspaper: "We can...hope that they will not go back (on the agreement.

"We are aware that we are racing with violence against the clock. We must win this battle against time and hatred."

Leaders of the two main Macedonian and two ethnic Albanian political parties met Western mediators for 11 days to thrash out the peace deal.

The rival political sides had returned to the talks at the southwestern lake resort of Ohrid on Wednesday after the Macedonians received assurances from NATO that ethnic Albanians rebels eventually would disarm in exchange for amnesty.

Under the plan, 3,500 NATO soldiers will deploy and carry out the disarmament, but only after the rival sides fully agree on the deal and after the Macedonian government pledges amnesty for the rebels, sources told the Associated Press.

The Macedonians agreed to grant amnesty to all rebels, the sources said, except those responsible for crimes dealt with by the U.N. war crimes tribunal in The Hague, Netherlands.

The insurgents say they are fighting for greater rights for the ethnic minority.