An internally displaced man holds his son inside a United Nations Missions in Sudan (UNMIS) compound in Juba December 19, 2013. [Photo/Agencies]

JUBA - South Sudanese government troops battled to regain control of a flashpoint town and sent forces to quell fighting in a vital oil producing area on Thursday, the fifth day of a conflict that has deepened ethnic divisions in the two-year-old nation.

The conflict, which has so far killed up to 500 people, has alarmed South Sudan's neighbors. African mediators held talks with President Salva Kiir on Thursday to try to broker peace.

The fighting that erupted around the capital Juba on Sunday night has quickly spread, pitting loyalists of the former Vice President Riek Machar, a Nuer, against Kiir, a member of the dominant Dinka clan.

Machar, whose dismissal in July led to months of tensions, has denied Kiir's accusation that he had led a coup attempt.

Rivals have fought fierce gunbattles over the town of Bor, north of Juba, the scene of a 1991 massacre by soldiers loyal to Machar of hundreds of Dinkas.

Thousands of people have sought refuge in UN bases, including 200 oil employees in a main crude-producing region. UN officials said one base in Jonglei state, where Bor is located, was breached by Nuer and there may have been deaths.

The fighting adds new instability to an already volatile region of Africa, derailing the young and undeveloped nation's halting efforts to build a functioning state.

A team of mediators sent by the Addis Ababa-based African Union arrived in Juba for talks. An Ethiopian official said representatives were from Ethiopia, Kenya, Uganda and Rwanda, the first major peace initiative since clashes first erupted.

"The African Union is until now meeting with the president," spokesman Ateny Wek Ateny said, without giving details of the team. "Their message is that they are trying to broker peace between the two forces."

Ateny said Bor was in the hands of Machar's forces. "Bor has surrendered actually because the forces that were in Bor were mainly loyal to Machar," he said. "They control the town but government forces are trying to retake the town."