(Corrects 1st paragraph to clarify U.N. peacekeepers stayed in Goma)
* Rebels "not confident" about peace talks
* Fighting erupts in rebel-held town of Sake
* Regional leaders urge rebels to halt, withdraw
By Jonny Hogg and Richard Lough
SAKE/GOMA, Democratic Republic of Congo, Nov 22 (Reuters) - C ongolese troops fought back on Thursday against rebels who rejected calls from African leaders to quit the eastern city of Goma, captured earlier this week in a major upset and despite the presence of U.N. peacekeepers.
Thousands of people fled the area of clashes around the town of Sake, as M23 rebel fighters rushed from Goma to reinforce their positions against an army counter-offensive.
Both sides claimed control of Sake as night fell on the troubled eastern area. There was no independent verification of who was holding the town.
The M23 rebel movement, widely believed to be backed by Rwanda, has vowed to "liberate" all of the vast, resource-rich country after taking Goma, a provincial capital on the Rwandan border, ramping up tensions in a fragile region.
With Congo struggling to regroup its fractured army, President Joseph Kabila suspended the head of ground forces following allegations levelled by a United Nations panel of experts that he sold weapons to other armed groups in the east.
"The head of state decided to immediately suspend General Major Gabriel Amisi due to an inquiry. Other officers of lower ranks will also be investigated by the army," Information Minister Lambert Mende said.
The head of M23's political arm, Jean-Marie Runiga, said the rebels would not retreat despite the call to do so from governments in central Africa, preferring to hold their ground until Kabila opens direct talks with them.
"We'll stay in Goma waiting for negotiations," Runiga told Reuters in the city. "They're going to attack us and we're going to defend ourselves and keep on advancing."
Runiga flew to Uganda on Thursday for three days of talks with President Yoweri Museveni, who is acting as an intermediary for negotiations, a Ugandan presidential source said.
Rebel fighters seized Goma, a sprawling lakeside city of a million people, on Tuesday after government soldiers retreated and U.N. peacekeepers gave up trying to defend it.
The next day the rebels moved unopposed into Sake, about 25 km (15 miles) west along the main road. It was there that government troops and allied militia were hitting back in fighting that flared up late on Wednesday.
SCRAMBLE TO HALT CONFLAGRATION
Regional and international leaders have been scrambling to halt the fresh conflagration in the Great Lakes, a region of many colonial-era frontiers and long a tinderbox of ethnic and political conflict, with rich mineral deposits as the spoil.
On Wednesday, foreign ministers of the Great Lakes states demanded the rebels leave Goma and halt their advance. Kabila - in a concession to the rebels that fell short of opening talks - promised to look into their grievances.
"I'm not confident, because I've already waited for three months in Kampala for talks," Runiga said of a recent stay in the Ugandan capital, before travelling there again.
He said M23 wanted aid groups to return to Goma, after they evacuated during the fighting. Reuters correspondents saw aid workers driving in the city on Thursday.
The rebellion has triggered anti-government protests in Kinshasa and other parts of the country. On Thursday opposition figures seized on it to criticise Kabila's rule.
"Kabila is responsible for the suffering of the Congolese in Goma and in North Kivu. His leadership is weak," Bruno Mavungu, Secretary General of the UDPS party led by top opposition politician Etienne Tshisekedi, who says he is the rightful winner of a 2011 poll that handed Kabila a second term.
Thousands of residents fled Sake on Thursday, a Reuters correspondent there said. Several truckloads of M23 fighters sped toward Sake from Goma as fighting raged in the afternoon.
Information Minister Mende said late on Thursday the army had wrested back control from the rebels, but a spokesman for M23 denied it had lost the town
"Sake and its surroundings are in the hands of M23. That's a provocation," Vianney Kazarama told Reuters.
OCHA, the U.N.'s humanitarian coordination office, said about 140,000 people were now displaced in and around Goma as a result of fighting. It said power had to be restored to the town to avoid an outbreak of cholera.
M23 takes its name from a peace deal, signed on March 23, 2009, that was meant to bring former rebels into the national army, but which the group says the government has violated. (Additional reporting by Bienvenu-Marie Bakumanya in Kinshasa; Writing by Richard Valdmanis; Editing by David Lewis and Michael Roddy)