* Sudan says it will mobilise army against south
* Halts talks after strike on Heglig oilfield
* African Union urges South Sudan to withdraw
By Alexander Dziadosz and Ulf Laessing
KHARTOUM/JUBA, April 11 (Reuters) - Sudan said it would mobilise its army against South Sudan on Wednesday, and halted talks with Juba over oil payments and other disputed issues after the South occupied an oilfield vital to the North's economy.
With South Sudan in turn accusing Sudan of bombing a village on the southern side of their 1,800-km (1,200-mile) border, U.N. Secretary-General Ban Ki-moon and the United States called for an end to clashes that threaten to spark a full-blown conflict.
South Sudan, which seceded in July, has been locked in an increasingly bitter dispute with the North over the fate of the formerly joint oil industry and other issues as fighting has escalated in the ill-defined border region.
South Sudan's army (SPLA) on Tuesday attacked Heglig, a disputed area containing an oilfield that accounts for about half of Sudan's 115,000 barrel-a-day output. The South's army claimed to be holding the oil wells.
"There is no doubt that Heglig area and the oil wells are under control of the SPLA," South Sudanese military spokesman Philip Aguer said, adding that the North's air force had bombed SPLA positions in Heglig and other areas.
A Sudanese official said he expected the fighting would hit oil output.
"I expect ... these oilfields will be affected, definitely, and at least there will not be production. If there is a conflict in the area, this is the least," said Rahamatalla Mohamed Osman, Sudan's undersecretary of foreign affairs.
Motorists worried about a possible disruption to fuel supplies formed lines at petrol stations to stock up as news of the Heglig attack spread through the capital, although the oil ministry issued a statement saying it had enough fuel.
The U.S. State Department condemned South Sudan's attack on Heglig, calling it "an act which goes beyond self-defence".
It also condemned Sudan's "continued aerial bombardment in South Sudan" and said the two sides needed to agree on an immediate cessation of hostilities.
Sudan's U.N. Ambassador Daffa-Alla Elhag Ali Osman said Sudan had exercised maximum self-restraint and if the U.N. Security Council did not condemn South Sudan's actions and demand it withdraw its troops, then Sudan would be forced to "retaliate severely deep inside South Sudan."
"We are ready for settling all the disputes with the south through peaceful negotiations, but with the recent developments they make it very difficult ... it would be extremely difficult to sit with somebody who has stabbed you in the back," he said.
The South seceded from Khartoum's rule last year, but the two sides have not agreed on issues including division of national debt, the status of citizens in each another's territory and the exact position of the border.
Oil is among the most sensitive issues. Landlocked South Sudan shut down its roughly 350,000 barrel-per-day output in January in a dispute over how much it should pay to export crude using pipelines and other infrastructure in Sudan.
Sudan's remaining output only serves domestic consumption.
Each side accuses the other of backing rebels in their territory.
"I don't think there can be negotiations in this climate," Osman said. "What happened yesterday is a violation of international laws and an aggression on Sudan, and we have all the right to defend ourselves and regain the territories which were occupied by government of South Sudan."
South Sudan's forces pushed 70 km (40 miles) into Sudan's territory on Tuesday, Osman said. An information ministry statement accused South Sudan of "using mercenary forces and rebel groups" in the attack. Juba routinely denies such charges.
Following the incursion, parliament ordered a halt to negotiations with the South, Sudan's state media said.
State news agency SUNA said Sudan would order a general army mobilisation but gave no further details. It quoted Defence Minister Abdel Raheem Muhammad Hussein as saying the army was capable of preserving stability and controlling the situation.
AU CALLS FOR WITHDRAWAL
SUNA said Sudan would halt all talks with Juba sponsored by the African Union and withdraw its negotiating team from Addis Ababa immediately.
The African Union called for the "immediate and unconditional withdrawal" of South Sudan's army from Heglig and urged restraint on both sides.
U.N. chief Ban contacted South Sudan's President Salva Kiir and Sudan's U.N. ambassador, urging both sides to exercise restraint and avoid further bloodshed, spokesman Martin Nesirky told reporters in New York.
"The Secretary-General urged (Kiir) to consider holding a presidential summit immediately to build confidence and assure the peoples of South Sudan and Sudan that peace and dialogue is the only option for both sides," he said.
South Sudan's Information Minister Barnaba Marial Benjamin said the Sudanese air force had bombed the village of Abiemnom in South Sudan's Unity state on Wednesday, wounding four people including a child.
He said South Sudan had been acting in self defence after Sudan launched a ground attack from Heglig late on Monday. Sudanese officials also said they were only trying to defend their territory.