Ethiopia on Monday denied that rebels fighting for independence for a region with potentially lucrative oil and gas reserves had seized seven towns near the border with neighbouring Somalia.

The Ogaden National Liberation Front (ONLF) said on Saturday it had taken the towns after almost a week of fierce fighting with the Ethiopian army.

"They haven't taken any towns at all," Bereket Simon, Ethiopian government head of information, told Reuters. "Their attacks last week were simply the desperate act of a dying force and about 245 of their fighters were killed."

Bereket said the ONLF were repelled by local militias allied to the government and that no Ethiopian soldiers had been killed.

The ONLF wants autonomy for the Ogaden region, whose population is ethnic Somali. The area is said to contain mineral deposits and international firms including Malasia's state-owned Petronas and Sweden's Lundin are exploring its deserts for oil.

The rebels in 2007 attacked an oil exploration field owned by a subsidiary of Sinopec, China's biggest refiner and petrochemicals producer, and killed 74 people. They now regularly warn foreign companies off prospecting.

No Fear For Oil Companies/b>

"International companies have nothing to fear from coming to explore in Ethiopia," Bereket said. "Our forces weakened the ONLF after they attacked the Chinese company and they are no threat anymore. They were easily repelled."

Addis Ababa says the ONLF are "terrorists" supported by regional rival Eritrea. The ONLF accuses the Ethiopian military of killing and gang-raping villagers and burning homes in the region as part of its effort to root out insurgents.

The Ethiopian and Somali governments say the ONLF are helping the Islamist al Shabaab group wage war against Somalia's U.N-backed government.

The Ethiopian rebels deny they are allied with al Shabaab, who the United States says are al Qaeda's proxy in Africa. Ethiopia is a key U.S. supporter in the Horn of Africa.

The regular accusations from both sides are impossible to verify. Journalists and aid groups cannot move freely in the area without government escorts.

The ONLF said its fighters had been "warmly welcomed" by residents in the seven towns and were giving treatment to civilians hurt in the fighting.

Bereket said the attacks had not been in remote villages.

The separatist cause has gained momentum due to a low level of development in the region.

Until Chinese engineers arrived in 2007, the entire area had only 30 km (20 miles) of tarmac road in an area of about 200,000 sq km.

by Barry Malone