By Chris Buckley

BEICHUAN, June 10 (Reuters) - Muddy lake water from a dangerously unstable "quake lake" rushed into the devastated Chinese town of Beichuan on Tuesday, covering about a third of the settlement where the water level was rising fast.

Brown water, clumps of trees and occasional vehicles pushing against buildings were moving quickly into low-lying areas of the town, washing away remains of buildings, bodies and valuables left under the rubble.

The water level at the Tangjiashan quake lake formed by China's most devasting earthquake in decades dropped by nearly two metres (seven ft) in one hour on Tuesday, after soldiers used explosives to widen a sluice, Xinhua news agency said.

The Tangjiashan lake, the largest of the more than 30 created when landslides blocked the flow of rivers, has forced the evacuation of more than 250,000 residents downstream in case the unstable dam of mud and rocks bursts.

Helicopters were evacuating remaining soldiers and experts on top of the dam, which was no longer safe because of the accelerating flow of water, Xinhua said.

Beichuan was so thoroughly ravaged that authorities sealed it off after the tremor.

The flooding brought more heartache to people displaced by the May 12 earthquake in which nearly 87,000 people either died or are missing. Many said goods and cash inside their homes were lost for good.

"It began flooding early this morning," said shop assistant Zhu Yunhui, 37, who said she had kept many tens of thousands of yuan in her home. "Now we can never go back. This is heartbreaking."

Wang Guiru, 43, whose wife died in the quake alongside his father and mother-in-law, said he had hoped to look for their remains.

"Now I guess we can never go back," he said stoically. "This is fate. We have to learn to face up to realities." (Additional reporting Guo Shipeng; Writing by Nick Macfie; Editing by David Fogarty)

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