* More than 1,000 civilians flee
* US raises more opposition to IMF loan
* Red Cross says can no longer reach people
* Government predicts 48 hours to rescue civilians
By C. Bryson Hull
COLOMBO, May 15 (Reuters) - Sri Lankan troops advanced on the Tamil Tigers on Friday and more civilians fled the shrinking war zone, signalling a military finish to Asia's longest modern war despite strong diplomatic pressure for a negotiated end.
The fighting came despite U.S. Secretary of State Hillary Clinton's urging that a $1.9 billion International Monetary Fund (IMF) loan to Sri Lanka be delayed until "there is a resolution of the conflict". [ID:nN14493896]
The International Committee of the Red Cross (ICRC) said heavy fighting meant no assistance could reach the people trapped in a sandy spit of the Indian Ocean island's northeastern coast, where the apparent last act of a 25-year war is playing out.
"Our staff are witnessing an unimaginable humanitarian catastrophe," ICRC operations director Pierre Krahenbuhl said in a statement. "No humanitarian organization can help them in the current circumstances. People are left to their own devices."
The government brushed off calls on Wednesday from the U.N. Security Council and U.S. President Barack Obama to slow its offensive, while the Tigers refused to surrender and free tens of thousands of people they are holding as human shields.
The stakes could not be higher for Sri Lanka, which does not want the surrounded LTTE to get another chance to escape conventional defeat, or for the Tigers, whose three-decade fight for a separate state for minority Tamils is near defeat.
President Mahinda Rajapaksa is banking on victory to secure another term and rejuvenate a $40 billion economy struggling with a declining currency LKR=, low foreign exchange reserves and shrinking revenue for key exports such as tea and garments.
In a political reversal, Sri Lanka sought the IMF loan in March to weather the effects of the global financial crisis and a balance-of-payments deficit.
But the United States and Britain have sought to use it as diplomatic leverage to avert civilian deaths in a bloody final showdown between two foes who have given no quarter.
The military said another 1,000 people on Friday escaped from the south of the 2.5 square km (1 sq mile) held by the Liberation Tigers of Tamil Eelam (LTTE), after 3,765 fled on Thursday across a lagoon under rebel fire.
"Troops are coming along the coastal line, and closing in," military spokesman Brigadier Udaya Nanayakkara said. "We want to rescue the civilians in 48 hours."
Pro-rebel website www.TamilNet.com on Friday reported that "close-quarter fighting was on", quoting an unidentified rescue worker who said most civilians were hiding in bunkers.
"Hundreds of civilians are being killed and maimed in the carnage," TamilNet said, adding that the army wanted to "enter the remaining part of the so-called safety zone before the election results are published in India" on Saturday.
The LTTE and government have both been concerned with the the Indian polls, hoping whoever takes power will support them.
Getting a clear picture of the battlefield is nearly impossible, since most outsiders are barred from it and both sides have repeatedly distorted accounts of events there to suit their version of the story.
U.N. Secretary-General Ban Ki-moon has dispatched his chief of staff, Vijay Nambiar, to Sri Lanka to discuss the humanitarian situation, U.N. spokesman in Colombo Gordon Weiss said. Nambiar was due in on Saturday, he said.
Reports that hundreds were killed in attacks on a makeshift clinic in LTTE territory, for which both sides blamed the other, spurred Obama and the Security Council to make their first formal statements on Sri Lanka since the war intensified this year.
Government doctors whose personal security is at the whim of the Tigers said constant shelling had prompted them to stop working at that clinic on Thursday.
"The U.N. is extremely concerned for the safety of these two doctors, Varatharajah and Sathyamoorthy. They were nominated for a U.N. peace prize for their extraordinary and courageous work manning the medical facilities," Weiss said.
The Tigers, on U.S., EU, Canadian and Indian terrorist lists, have vowed no surrender in their fight for a separate nation for Sri Lanka's Tamils, which began in the 1970s and erupted into full-scale civil war in 1983. (For Q+As on the crisis, click on [ID:nCOL485078] or [ID:nCOL480174]) (Editing by Alex Richardson)