(For related factboxes click on [ID:nCOL447422], [ID:nLK420761] and [IDn:COL466996])
* Civilian exodus hits 81,000 and climbing
* UN confirms massive civilian outflow
* U.S. says war at "decisive point"
By C. Bryson Hull and Ranga Sirilal
COLOMBO, April 22 (Reuters) - Thousands more civilians surged out of Sri Lanka's war zone on Wednesday, while soldiers and Tamil Tiger rebels fought the apparent endgame of Asia's longest-running war despite calls to protect those still trapped.
In the third day since troops blasted through a massive earthen wall built by the Liberation Tigers of Tamil Eelam (LTTE) and unleashed the exodus, the military said 81,420 people had been registered for onward transit to refugee camps.
The massive civilian presence in a 17 square km (6.5 sq mile) area had been the last crucial defence for the Tigers, who have refused repeated calls from the United Nations, Western governments and neighbouring India to release them.
Sri Lanka's government has meanwhile rejected LTTE and international calls for a truce, saying it cannot allow a group designated as a terrorist organisation by more than 30 countries to use the time to rearm, as it has done in the past.
By Wednesday morning, troops had captured about a third of the remaining Tiger-held area, which had been an army-declared no-fire zone until soldiers marched in and turned it into the conflict's final conventional battlefield after people fled.
"Confrontations are taking place. Whenever we come across LTTE cadres, we are fighting them. The rescue operation is continuing," military spokesman Brigadier Udaya Nanayakkara said.
Defence spokesman Keheliya Rambukwella later told a media briefing troops had taken control of about a third of the area, after seizing the centre of the north-south strip of coast and dividing the remaining rebel fighters into two pockets. Nanayakkara said 153,000 civilians have fled LTTE areas so far this year.
UN CONFIRMS EXODUS
The United Nations confirmed this week's outflow.
"It is 60,000 plus and counting, and we have heard various reports of up to 110,000 coming out," said U.N. spokesman in Colombo, Gordon Weiss. He cautioned the reports were preliminary and not confirmed.
So far, only 7,500 had reached refugee centres away from the front in Jaffna and Vavuniya towns, while the rest were in transit, he said.
Aid agencies have warned refugee camp conditions could quickly turn bad with the populations doubling, but Sri Lankan President Mahinda Rajapaksa has ordered extra food and reliefs supplies to be sent.
On Tuesday, the International Committee of the Red Cross had said the war zone situation was "catastrophic", with several hundred killed since Monday and at least 50,000 more remaining at risk with limited food, water and medical care.
The United Nations and others have accused the LTTE of forcing people to stay in the war zone or making them fight, and the government of shelling civilian areas. Both deny the accusations.
Senior U.S. diplomat Michael Owen urged Sri Lanka to allow the international community to monitor what was happening and assure help for trapped civilians.
"The 26-year-old conflict is at a decisive point and we see the potential for major developments witin the next 48 hours," he told reporters in Washington on Tuesday.
The military operation to rescue the civilians began on Monday and gathered speed on Tuesday after the LTTE ignored a noon deadline to surrender, despite being massively outgunned by a military built up to wipe them out and end the war.
A senior LTTE official hours later said the group would never surrender nor give up its drive to create a separate state for Sri Lanka's minority Tamils, which has percolated since the early 1970s but erupted into full-blown civil war in 1983.
After the conventional end of the war, Sri Lanka will face the challenges of healing divisions between the Tamil minority and Sinhalese majority, and boosting a $40 billion economy suffering on many fronts including a weakening rupee .LKR.
Sri Lanka is seeking a $1.9 billion International Monetary Fund loan to ease a balance of payments crisis and boost flagging foreign exchange reserves.
But the government's war successes have driven the Colombo Stock Exchange .CSE to two-month highs. (For more Sri Lanka coverage, click on [ID:nSP493680]; for a graphic see: here jpg) (Additional reporting by Arshad Mohammed in WASHINGTON; Editing by Jerry Norton)