MEIKHTILA, Myanmar (Reuters) - Myanmar declared martial law in four central townships on Friday after unrest between Buddhists and Muslims stoked fears that last year's sectarian bloodshed was spreading into the country's heartland in a test of Asia's newest democracy.
Whole neighborhoods were still smoldering on Friday and agitated Buddhist crowds roamed the streets after three days of turbulence, said Reuters reporters in the city 540 km (336 miles) north of the commercial capital Yangon.
State television said President Thein Sein had declared a state of emergency and imposed martial law in the four districts, placing the military, rather than local police, in charge of security. Authorities imposed an overnight curfew on Wednesday.
Twenty people, including a Buddhist monk, have been killed and dozens wounded since Wednesday, said Win Htein, a lawmaker for the opposition National League for Democracy (NLD) party.
Two camps now held more than 2,000 people displaced by the fighting, he added.
The unleashing of ethnic hatred, suppressed during 49 years of military rule that ended in March 2011, is challenging the reformist government of one of Asia's most ethnically diverse countries.
Jailed dissidents have been released, a free election held and censorship lifted in Myanmar's historic democratic transition. But the government has faced mounting criticism over its failure to stop the bloodshed between Buddhists and Muslims.
"I am really sad over what happened here because this is not just happening to one person. It's affecting all of us," said Maung Maung, a Buddhist official in Meikhtila.
Hundreds of Muslims have fled their homes to shelter at a sports stadium, local officials said.
"When I jumped off from the car, a group of people started attacking me. They struck me with swords and knives," said a Muslim evacuee who was attacked while being driven to the stadium.
The unrest is a reprise of last year's violence in Rakhine State in western Myanmar, which officially killed 110 people and left 120,000 homeless, most of them stateless Rohingya Muslims.
Locals had complained there were too few police in Meikhtila to quell the unrest. It erupted after an argument between a Buddhist couple and the Muslim owners of a gold shop spiraled into a riot involving hundreds of people, said police.
"I want to help everybody regardless of race and religion. We are all human," a Buddhist monk told Reuters.
Reuters saw some residents arming themselves with knives and as occurred in Rakhine in 2012, when battles between the two communities turned into orchestrated attacks on Muslim communities by organized gangs of ethnic Rakhine Buddhists.
The United Nations warned the sectarian unrest could endanger a fragile reform program launched after Myanmar's quasi-civilian government replaced a decades-old military dictatorship in 2011.
"Religious leaders and other community leaders must also publicly call on their followers to abjure violence, respect the law and promote peace," Vijay Nambiar, U.N. special adviser of the secretary-general, said in a statement.
Myanmar is a predominantly Buddhist country, but about 5 percent of its 60 million people are Muslims. There are large and long-established communities in Yangon and Mandalay, Myanmar's two largest cities, where tensions are simmering.
"Everyone is in shock here. We never expected this to happen," said a Muslim teacher in Mandalay, requesting anonymity.
Rumors that agitators were heading for the city had set its Muslim community on edge, he said. Buddhist monks known for their anti-Islamic views last year staged protests in Mandalay.
In Meikhtila, at least one mosque, an Islamic religious school, several shops and a government office were set alight, said a fire service official, who declined to be identified. Reuters saw both Buddhist and Muslim homes burned.
Sectarian unrest is common in central Myanmar, although reports were stifled under the military dictatorship.
Three people died in Sinbyukyun in 2006 when Buddhists attacked homes and shops belonging to Muslims and ethnic Indians, according to a U.S. diplomatic cable.
"The incident reveals underlying tense inter-ethnic relations in the heartland," said the cable, which also referenced similar communal riots in Kyaukse, a town near Meikhtila, in 2003.
Writing by Andrew R.C. Marshall; Editing by Jason Szep, Amy Sawitta Lefevre and Ron Popeski