Protesters in Bangkok under siege

Thai anti-government protesters were locked in a tense standoff with security forces who corralled them at their main camp after street battles in Bangkok that left two dead and 113 injured.

As dawn broke, police said that some 2,500 red-shirted protesters remained dug in and around Government House, the offices of Prime Minister Abhisit Vejjajiva who has imposed a state of emergency in the capital.

Several hundred soldiers and police watched over the area a day after using tear gas and automatic weapons to clear the rest of Bangkok of demonstrators, who are loyal to ousted former premer Thaksin Shinawatra.

"The situation at the rally site last night was very tense because we were surrounded by soldiers and there were constant rumours that they would start a crackdown," protest leader Chinawat Haboonpard told AFP by telephone.

The rally organisers held crisis talks and considered dispersing in the face of the overwhelming security presence, said Chinawat, who leads an alliance of taxi drivers who have helped mount blockades.

"I think we should disperse because we are not able to mobilise more protesters as our communications have been cut off and we are contained," he said.

"We were pretty sure that they would disperse us last night but I think the government changed their plan because they successfully contained us."

Abhisit has hailed the success of the military campaign to dislodge the protesters, who are known as "Red Shirts" because of their clothes, and warned the remaining demonstrators to stand down or face the consequences.

"This mission has progressed and is nearly complete, and I ask all of the authorities to remain firm," he said in a national address late Monday, flanked by top brass and cabinet ministers.

Overnight, authorities drove dozens of buses to a plaza near Government House where they used loudhailers to urge the protesters, who are mostly from Thaksin's stronghold in Thailand's northeast, to return home.

"If you want to return home, we have provided you with buses and we assure you will have a safe journey home," police announced.

The campaign to shut down days of protests has been rolled out carefully, amid fears of a repeat of violence in Bangkok last October in which two people died and 500 were injured.

Bangkok emergency services on this morning confirmed that the toll from clashes between security forces, demonstrators and local residents stood at two dead and 113 people wounded with 44 still being treated in hospital.

"Emergency medical teams are on standby around the protest site," an official from the centre said.

Cabinet minister Satit Wonghnongtaey said that a 54-year-old resident had been shot and killed, while two others were injured. A private hospital said that a 19-year-old man had died from gunshots and five others were injured.

An army spokesman said that during the offensive, live rounds were fired overhead to "terrify" protesters, but only blanks were used in close-range encounters.

Bangkok's police spokesman went on television to show bullet casings recovered from the clash with residents and urged them not to become vigilantes.

"Residents should not be concerned, and must not come out and fight by themselves. The police will take care of the security," said Major-General Suporn Phansua.

Ministry torched with petrol bombs

Military commander Songkitti Jaggabatara vowed to restore order using "all possible means" and said that while his troops would not instigate violence, they reserved the right to self-defence if attacked.

The military's support after a period of apparent reluctance on Sunday strengthened the embattled Abhisit's hand in the crisis. The army refused to enforce emergency decrees by previous pro-Thaksin governments last year.

Yesterday, troops unleashed volleys of gunfire and hurled tear gas at the protesters, who sent buses hurtling towards lines of soldiers and torched a building in Thailand's education ministry complex, setting it ablaze.

The protesters were forced to retreat to Government House, where as night fell residents erected roadblocks and armed themselves with guns and swords, setting the stage for a deadly confrontation with the "Red Shirts".

Thailand has been mired in turmoil since the military toppled Thaksin in a coup in 2006, but the unrest confronts British-born Abhisit with his biggest challenge since he took office in December.

The "Red Shirts" want him to quit and call fresh elections, saying he came to power through an undemocratic parliamentary vote following a court ruling that drove Thaksin's allies from office.

The unrest has sparked warnings from a number of nations advising tourists not to travel to Thailand or to exercise caution if they are already there.

In Washington, the US State Department condemned "unacceptable violence" by the protesters and urged their leaders to pull back.

Meanwhile, the Asian Development Bank warned that the political chaos could further dent economic growth, which is already expected to post a contraction this year, notably by hitting tourism and investment.