(Updates death toll, adds resident quotes) By Sahal Abdulle MOGADISHU, Nov 12 (Reuters) - Eight people were killed when troops from a powerful Somali Islamist movement clashed on Sunday with fighters allied to the interim government a day after it rejected a peace initiative. The fighting near the semi-autonomous northern Puntland region is the second duel between the sides since Monday, and the latest sign of tensions that could bring full-blown war. "The government troops ambushed us," Islamist spokesman Abdirahman Ali Mudey said. "They forced us to take their biggest base in Bandiradley, near Galkaayo." The government denied its base had been seized. "The Islamists attacked us but they were successfully repelled," Information Minister Ali Ahmed Jama "Jangali" told Reuters. "The fighting is still going on." A resident of Bandiradley said the skirmishing took place about 3 km (1.4 miles) north and south of the town, and that the Islamists were in control. "The local residents are fleeing, afraid that the alliance might attack the city again," businessman Farah Abdi told Reuters by radio telephone. There was no independent confirmation of the casualties which Islamist sources put at eight in total from both sides. Bandiradley is 690 km (429 miles) north of Mogadishu. The clash could signal the growth of a second frontline in what many fear will become an all-out war that will suck in Horn of Africa rivals Ethiopia and Eritrea, who are backing the government and Islamists respectively. Mudey said the government forces were led by warlord Abdi Awale Qaybdiid, whom the Islamists ejected from Mogadishu in July after defeating him and his U.S.-backed allies who had controlled the capital for years. FLIGHTS BANNED The government on Saturday rejected a deal to restart collapsed talks to avert war with the Islamists, brokered by parliament Speaker Sharif Hassan Sheikh Adan. Arab League-led negotiations failed two weeks ago, and diplomats had said they believed Adan's initiative was the last best hope at avoiding war in the nation of 10 million. Islamist troops and fighters in the government alliance are just kilometres (miles) apart in a frontline near the government base in Baidoa, and also near the Puntland border. Security experts told Reuters on Friday that 11 nations have been sending arms and military equipment to both sides at a dizzying rate since June, even by the standards of a country awash with weapons. In yet another sign of the spillover effect many fear the war will have in the Horn and east Africa, Kenya on Saturday banned all scheduled flights in and out of Somalia. Somalia's Western-backed and internationally recognised government is holed up in Baidoa. The Islamists, who have imposed sharia law across most of the south, have all but dashed government plans to impose central authority on a nation mired in anarchy since a dictator was deposed in 1991.
