Fighting between Georgian forces and Russian-backed separatists raged in and around Tskhinvali, the capital of South Ossetia, after Tbilisi sent troops to take back the territory, which broke away in the 1990s.
A senior Georgian security official said Russian jets had bombed the Vaziani military airbase outside the Georgian capital Tbilisi, and President Mikheil Saakashvili said 150 Russian tanks, armoured personnel carriers and other vehicles had entered South Ossetia from neighbouring Russia.
He also said Georgian forces had downed two Russian jets.
The Russian RIA news agency quoted a source in the regional Russian military headquarters as saying Russian armour had rolled into Tskhinvali, which Georgia had earlier claimed to have "freed". There was no immediate confirmation from Russia that it had sent bombers.
The crisis, the first to confront Russian President Dmitry Medvedev since he took office in May, looked close to spiralling into full-blown war in a region emerging as a key energy transit route, and where Russia and the West are vying for influence.
The roar of warplanes and the explosions of heavy shells were deafening more than two miles away from Tskhinvali. Many houses were ablaze.
Marat Kulakhmetov, commander of Russian peacekeepers in the territory, told Interfax by telephone from Tskhinvali: "As a result of many hours of shelling from heavy guns, the town is practically destroyed."
Russian news agencies quoted witnessess saying a Russian armoured column had rolled across the border.
Saakashvili told reporters: "This is a clear intrusion on another country's territory. We have Russian tanks on our territory, jets on our territory in broad daylight." He ordered a full-scale mobilisation of military reservists.
NATO, the European Union and the United States, a vocal Georgian ally, all urged a halt to the bloodshed while Moscow vowed to respond after it said several Russian peacekeepers were killed by Georgian artillery fire.
"Some shells directly hit (their) barracks in Tskhinvali," Russia's Interfax news agency quoted a peacekeepers' spokesman as saying.
Andrei Chistyakov, a correspondent for Russia's Vesti-24 television station, said at least 15 civilians had been killed in Tskhinvali, where thousands of people took refuge in cellars.
"These are the people whose bodies were seen in their yards and in the streets," he said by telephone.
Medvedev vowed to defend Russian "compatriots" in South Ossetia, whose separatist administration is supported by Russia, and where most people have been given Russian passports.
"We will not allow their deaths to go unpunished," Interfax quoted him as saying.
The International Committee of the Red Cross (ICRC) urged the two sides to set up a "humanitarian corridor" to evacuate civilians and the wounded.
Georgia said its operation, launched after a week of clashes between separatists and Georgian troops in which nearly 20 people were killed, was aimed at ending South Ossetia's effective independence, won in a 1991-92 war.
The majority of the roughly 70,000 people living in South Ossetia are ethnically distinct from Georgians. They say they were forcibly absorbed into Georgia under Soviet rule and now want to exercise their right to self-determination.
Russian Prime Minister Vladimir Putin, visiting Beijing, said Georgia had used heavy armour and artillery.
"The Georgian leadership has resorted to very aggressive actions, he said. "There are casualties, including among Russian peacekeepers. This is very sad and this will incur a response."
A senior Georgian security official, Kakha Lamaia, told Reuters that heavy military equipment and armoured vehicles were entering South Ossetia through the Roki tunnel from Russia.
"Our intelligence didn't detect any regular Russian units, but detected heavy equipment and armoured military vehicles coming through the tunnel," he said.
Georgian Interior Ministry spokesman Shota Utiashvili said government forces had also fought mercenaries who had entered South Ossetia from Russia.
Georgian Prime Minister Lado Gurgenidze said the operation would continue until a "durable peace" had been reached.
The Kremlin said Medvedev had summoned his top security advisers to discuss how to restore peace and defend civilians "within the peacekeeping mandate we have".
At an emergency session of the United Nations on Thursday night, Russia failed to push through a statement that would have called on both sides to stop fighting immediately.
Council diplomats said a phrase calling on all sides to "renounce the use of force" had been unacceptable to the Georgians, backed by the United States and the Europeans.
Saakashvili, who wants to take his small Caucasus nation into Nato, has made it a priority to win back control of South Ossetia and Abkhazia, another rebel region on the Black Sea.
The issue has bedevilled Georgia's relations with Russia, which is angered by Tbilisi's moves towards the Western fold and its pursuit of Nato membership.
© 2008 Reuters