(Adds Ethiopian comment)

By Jack Kimball

ASMARA, April 23 (Reuters) - Eritrea on Monday rejected Ethiopia's assertion that Asmara had released eight Ethiopians who were kidnapped last month with a group of Europeans, saying Eritrea had never held the group.

Ethiopian state television said on Sunday the eight had been freed following international pressure on Eritrea, its foe and neighbour, which has always denied involvement in the abduction in a remote desert region.

"It's not true. These are Ethiopians who have been taken by Ethiopians and it has nothing to do with us," Information Minister Ali Abdu told Reuters by phone.

"I don't know whether it is paranoia, obsession or madness. They have developed this pattern blaming Eritrea every day and night," he said.

The hostage saga has heightened tensions between the two Horn of Africa neighbours who fought a 1998-2000 border war killing 70,000 people. They blame each other for agitating the Somali conflict.

The Ethiopians were seized at gunpoint with five Europeans in northern Ethiopia's remote Afar region in early March.

The Europeans were freed in Asmara 12 days later, but their Ethiopian guides were held until Sunday.

Separatist rebels from the Afar region -- which straddles both countries and is one of the hottest and most barren regions on earth -- claimed responsibility for the kidnappings.

On Monday, Ethiopia repeated its frequent call for international condemnation of Eritrea, which it accuses of seeking to destabilise the region.

"The fact it sent its armed forces to kidnap five Europeans and eight Ethiopians after crossing the international border ... proves its policy of state-sponsored terrorism," Ethiopia's Information Ministry said in a statement. (Additional reporting by Tsegaye Tadesse in Addis Ababa)

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