Artillery blasts and air fire were audible throughout the night in Grozny. Russian forces have set up a security zone in the north and suggested they could push their way south towards Grozny.

Chechen officials said battles were raging in Garagorsky district, 50 km northwest of Grozny. Some reported ``heavy losses'' inflicted on Russian forces, including armoured vehicles put out of action. Precise details were unavailable.

Russian officials in Moscow and in and around Chechnya also reported military activity, including fresh air strikes on Garagorsky and Bamut, southwest of Grozny.

Russian and Chechen officials have often come out with inflated figures of losses on the opposite side.

Chechen President Aslan Maskhadov, his call for urgent talks with the Kremlin apparently rejected, has begun hardening hisposition. He vowed to offer stiff resistance to the Russians and predicted the Kremlin would eventually return to diplomacy.

A Russian statement issued in Mozdok, the major Russian military base located just outside Chechnya, said federal forces controlled 39 villages. Troops had defeated Muslim militants in Grozny district and in the major regions of Veden and Gudermes.

Garagorsky is south of the Terek river, which bisects Chechnya and was seen as Russia's first objective for setting up the security cordon and a modicum of civilian institutions.

Roads run out of the district direct to Grozny and the mountainous south, where resistance to Russian advances would certainly be much fiercer than up until now.

Meanwhile, Vakha Arsanov, a former Chechen vice-president and an important figure in the separatist administration, said Chechnya would be ready for any Russian onslaught on the capital.

``Let the Russians come in a little further and then we will let them have it,'' Arsanov told reporters, adding,``But we are not merely sitting back calmly and waiting for them.''

Grozny remained calm, as it has since Russia began its air and ground advance three weeks ago. But fighters were moving throughout the town, many gathering outside large factories, grenade launchers at the ready.

Refugees continued to pour out of town, fearing a recurrence of the 1994-96 war, which ended in Russia's formal withdrawal from a region it had not really controlled since 1991. Most of the more than 150,000 refugees have left, most sheltering in tent cities in the adjacent region of Ingushetia.

Maskhadov has offered to clamp down on extremists as part of a peace plan. But Russian Prime Minister Vladimir Putin rejected talks until he handed over fighters which Moscow accuses of regional subversion and staging bomb blasts in Russian cities. Both official Grozny and the rebels deny being behind the bombs.