UPDATE 2-Sudan army says moving on oil town seized by South
* Sudan vowed to hit back if south does not leave oilfield
* African Union wants immediate withdrawal of south's troops
* Fears of resumption of war almost a year after Sudan split (Adds Sudan army says it is advancing)
By Ulf Laessing and Khalid Abdelaziz
JUBA/KHARTOUM, April 13 (Reuters) - Sudan's army said it was advancing on the disputed town of Heglig on Friday in an attempt to oust South Sudanese forces from the oil-producing area after the south said it would withdraw only if the United Nations intervened.
Fighting between Sudan and South Sudan this week has brought the two closer to a resumption of full-blown conflict, nine months after the south seceded under a peace deal that ended decades of civil war.
South Sudan seized the Heglig oilfield near the border on Tuesday, sparking widespread condemnation. The African Union denounced the occupation as illegal and urged the two sides to avert a "disastrous" war.
Heglig, which the south claims as its own, is vital to Sudan's economy because it has a field accounting for about half of its 115,000 barrel-a-day oil output. The fighting has stopped crude production there, officials say.
Sudan's military, which has vowed to strike back if the South's army (SPLA) did not withdraw, said its forces were on the outskirts of Heglig and pushing forward. "The armed forces are advancing toward Heglig town," military spokesman Al-Sawarmi Khalid Saad told reporters in Khartoum.
"The situation in Heglig will be resolved within hours."
South Sudanese armed forces spokesman Philip Aguer said he had not received reports of fighting in Heglig on Friday, but that the situation there should become clearer on Saturday.
"If they are advancing, the SPLA is ready to defend itself and its territories," he said by phone. "When they (Sudan's army) were pushed out of the area, they were occupying it by force, so if they want to come back by force, they can try it."
Speaking in Nairobi, Pagan Amum, South Sudan's lead negotiator at talks to resolve the dispute with Sudan, said his country was ready to withdraw under a U.N.-mediated plan.
"On the ground, we are ready to withdraw from Heglig as a contested area ... provided that the United Nations deploy a U.N. force in these contested areas and the U.N. also establish a monitoring mechanism to monitor the implementation of the cessation of hostilities agreement," he told reporters.
Amum said there were seven disputed areas and called for international arbitration to end the dispute over these regions.
The loss of Heglig's oil output is another blow to Sudan's economy, which was already struggling with rising food prices and a currency depreciating on the black market.
Amum said the Heglig facilities were "largely" damaged by fighting, but did not give details.
"Resumption of oil in that area will only come when the U.N. deploy their forces between the two countries and in the disputed areas and when the two countries reach agreement to resume oil production," he said.
Landlocked South Sudan shut down its own 350,000 barrel-per-day oil output in January in a row over how much it should pay to export crude via pipelines and facilities in Sudan.
Oil accounted for about 98 percent of the new nation's state revenues and officials have been scrambling for ways to make up for the loss.
In Juba, about 200 people demonstrated at a government-organised protest against Sudan and in support of the occupation of Heglig, holding banners which read: "The people want the army to be in Heglig" and "They bomb children and women".
The U.N. Security Council on Thursday added its voice to the chorus of demands that Sudan and South Sudan stop the clashes. Sudan's U.N. ambassador said South Sudan must heed the call or Khartoum would "hit deep inside the south."
The African Union, which had been helping mediate talks between the two countries over oil payments and other disputed issues before Khartoum pulled out on Wednesday, also condemned the south's occupation of Heglig.
"The Council is dismayed by the illegal and unacceptable occupation by the South Sudanese armed forces of Heglig, which lies north of the agreed border line of 1st January, 1956," African Union Peace and Security Council Commissioner Ramtane Lamamra told reporters after a meeting late on Thursday.
The south seceded from Khartoum's rule last year but the two sides have not agreed on issues including the position of the border, the division of the national debt and the status of citizens in each other's territory.
Some 2 million people died in Sudan's civil war, fought for decades over ideology, religion, ethnicity and oil. (Additional reporting Yara Bayoumy in Nairobi and Aaron Maasho in Addis Ababa; Writing by Alexander Dziadosz and James Macharia; Editing by Mark Heinrich)
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