* Council condemns rebel "terrorism," demands they disarm

* Security Council voices concern over government shelling

* Obama warns of humanitarian catastrophe in Sri Lanka (Adds British ambassador, diplomats; paragraphs 7, 15 )

By Louis Charbonneau

UNITED NATIONS, May 13 (Reuters) - The U.N. Security Council on Wednesday voiced grave concern for the first time over civilian deaths in Sri Lanka's war and demanded that the army and rebels take urgent action to protect civilians.

The message to the Tamil Tiger rebels and government of Sri Lanka was agreed on during a closed-door meeting of the 15-nation Security Council, its first formal consultations on the issue since the Sri Lankan war escalated sharply several months ago.

"The members of the Security Council express grave concern over the worsening humanitarian crisis in northeast Sri Lanka, in particular the reports of hundreds of civilian casualties in recent days," the unanimously agreed statement said.

Shelling killed a Red Cross worker inside Sri Lanka's war zone on Wednesday and hundreds of civilians were reported killed on Sunday and Monday by artillery fire as troops attacked a narrow strip of land held by Liberation Tigers of Tamil Eelam, or LTTE, rebels, who look set to lose a 25-year war.

Diplomats said the heavy civilian deaths reported over the weekend were one of the factors that helped to convince Russia, China, Vietnam and Libya that it was necessary to have a formal meeting on the situation in Sri Lanka.

Although the council had held several informal meetings on the war, the four countries had opposed any formal council action on what they see as an internal Sri Lankan matter. While it is not legally binding, council diplomats said the unanimous statement would help to ratchet up the pressure on Sri Lanka.

"This is an important step forward by the Security Council," British Ambassador John Sawers said. "We have for the first time produced an official written statement by the council addressing the worsening humanitarian crisis in Sri Lanka."

In Washington, U.S. President Barack Obama called for both sides to prevent a humanitarian disaster for the tens of thousands of people trapped in the war zone.

"Without urgent action this humanitarian crisis could turn into a catastrophe," Obama said at the White House.

TAMIL TIGER "TERRORISM" CONDEMNED

The Security Council statement said the council members "strongly condemn the LTTE for its acts of terrorism over many years" and urged the group to "lay down its arms and allow the tens of the thousands of civilians to leave." U.N. officials say the rebels are using civilians as human shields.

The Security Council also voiced "deep concern" about reports of continued heavy shelling by government forces in the conflict zone -- reports that the Sri Lankan government has repeatedly denied.

The statement, which was drafted by France, Britain and Austria with the backing of the United States, also expressed support for the "personal involvement" of U.N. Secretary-General Ban Ki-moon, whom the government has invited to go to Sri Lanka.

Ban said on Monday he was appalled by the reports of heavy civilian casualties.

Council members agreed earlier on Wednesday to issue a brief statement expressing their "concern" over a U.N. board of inquiry report about Israel's January war against Hamas militants in the Gaza Strip that was critical of Israel.

Diplomats said the United States and its allies on the council initially balked at the idea of discussing the Gaza report. But compromising on Gaza, they said, almost certainly helped the Western powers to secure a compromise on Sri Lanka. (Additional reporting by John Whitesides in Washington; Editing by Peter Cooney)

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