(Recasts with EU statement, changes headline)

By Kazbek Basayev

TSKHINVALI, Georgia, July 4 (Reuters) - The European Union called for restraint on Friday after an overnight clash killed two people in Georgia's breakaway region of South Ossetia.

The Russian-backed separatist administration called up military reservists and put its security forces on alert after the most intense exchange of fire for months in South Ossetia.

Separatists said Georgian forces fired mortars and rocket propelled grenades at their capital, Tskhinvali, and nearby villages. They said two servicemen were killed and 11 people wounded, most of them civilians.

Russia called it "an open act of aggression" by Tbilisi. Georgia said it had been forced to return fire after an attack and blamed Moscow for stirring up tension.

Georgia's rebel enclaves of Abkhazia and South Ossetia broke from central rule during wars in the 1990s and are regular flashpoints for tensions with Russia, which provides rebels with financial support and has peacekeepers in both regions.

"The Presidency of the European Union expresses concern over the last incidents that have occurred in South Ossetia (Georgia) and caused human casualties, against an already tense background," the EU said.

"The Presidency calls on the parties to show restraint and to resume dialogue as soon as possible in order to restore confidence."

Since the start of the year Abkhazia, the bigger of the two breakaway republics, has been the main source of friction, but tensions this week shifted to South Ossetia, which lies 100 km (60 miles) north of the Georgian capital, Tbilisi.

A reporter working for Reuters counted 12 explosions in the central square of the Ossetian capital, Tskhinvali, in the early hours of Friday morning. Officials with bodyguards fled towards official buildings before the electricity was cut.

After the blasts, intensive gunfire, including the sound of grenade launchers, could be heard for about 30 minutes. Georgia said it sustained no casualties. The separatists later took their military off alert.

TENSIONS RISE

Russia blamed Tbilisi and Georgia blamed Moscow.

"Moscow considers it unacceptable when Tbilisi ... is committing undisguised acts of aggressions against South Ossetia, the Russian foreign ministry said in a statement.

"The recent military incidents will lead to a sharp escalation in the armed confrontation in the conflict zone," it said. "Any further delays in resuming the negotiations process could lead to the most tragic consequences."

Neither Tbilisi nor the separatists admitted violating a ceasefire. "If provocations from the Russian side continue we will be ready to respond in an adequate way," Georgian Deputy Foreign Minister Grigol Vashadze said after meeting his Russian counterpart in Tbilisi.

Russian Foreign Minister Sergei Lavrov demanded on Friday that Tbilisi sign a non-aggression pledge on South Ossetia. The head of Russia's peacekeeping troops in the region said extra soldiers could be deployed there if the stand-off worsened.

"They (the Georgians) were using large calibre weapons: mortars and grenade launchers," Irina Gagloyeva, chair of the separatists' committee for information, told Reuters. "Yesterday, we announced a general mobilisation," she said.

Georgian President Mikheil Saakashvili, who wants his ex-Soviet Caucasus state to join NATO and the EU, sees the re-integration of Abkhazia and South Ossetia as a top priority.

Moscow's envoy to NATO accused the West of colluding with Tbilisi to play down the tension.

"A lot of Euro-Atlantic structures are actually covering up the adventurism of Mr Saakashvili who has repeatedly said he wants to restore territorial integrity by force," Dmitry Rogozin told Vesti-24 television station. (Additional reporting by Margarita Antidze in Tbilisi and Dmitry Solovyov in Moscow; editing by Philippa Fletcher)

AlertNet news is provided by