After nearly a week of vicious fighting, Mozambique's rebels controlled about half of the strategic town of Palma on Tuesday, deepening the humanitarian crisis in the country's north and jeopardizing the multi-billion-dollar investment in offshore gas fields.
About 200 rebels armed with automatic rifles, machine guns, and mortars now control the part of Palma where government offices and banks are located, according to local media reports.
Thousands of residents already have fled to nearby Tanzania and south to the provincial capital of Pemba, according to international aid agencies.
More than 900,000 people in Mozambique now require food aid because of the crisis in the northern part of the country, according to the U.N. World Food Program.
"It is a fast-evolving conflict situation and large numbers of people are fleeing through the bush, with nothing, nothing by the clothes on their backs," Lola Castro, the regional director for WFP told The Associated Press. "This humanitarian crisis is not going away, it's increasing."
Palma's streets are deserted except for sporadic gunfire from the rebels, said Lionel Dyck, director of the Dyck Advisory Group, whose helicopter gunships are helping the Mozambican police battle the insurgents.
"It's actually quite dire on the ground. It's chaos because there's still no real control and there won't be control for some time," Dyck, a retired colonel in the Zimbabwean army, told the AP on Tuesday.
"We are fighting the people on the ground and we are at the same time looking for stragglers," he said. "As we are flying over areas, we look for people that are hiding in the bush ... We can use our squirrel helicopters and go out and pick up the civilians and move them to a friendly base."
The insurgents, who are allied to the Islamic State group, also attacked a site on the Indian Ocean coast near Macomia last week, showing their reach across Cabo Delgado province, according to local media reports.
The three-year insurgency of the rebels, who are primarily disaffected young Muslim men, has taken more than 2,600 lives and displaced an estimated 670,000 people, according to the U.N.
A video posted by the Islamic State group purports to show fighters in or near Palma, but cannot be independently verified by The Associated Press.
About 50 armed fighters in a mix of camouflage uniforms, black shirts, and red headscarves are gathered for what appears to be a roll call.
"Permission to kill where we are going," and "Permission to cut and kill where we are going," is shouted by some men, speaking a local dialect of Swahili and Arabic.
The rebels are known locally as al-Shabab (the youth in Arabic) but have no known affiliation with the jihadist rebels of the same name in Somalia. The United States last week declared Mozambique's rebels to be a terrorist organization and announced that 12 military trainers had been deployed to help the southern African country's marines.
Portugal, Mozambique's former colonial power, announced Tuesday that is stepping up its military cooperation by sending 60 soldiers to help train Mozambican special forces.
The European Union is also preparing "to increase security cooperation (with Mozambique), possibly via support with equipment or training," Portuguese Foreign Minister Augusto Santos Silva said in a statement.
The France-based oil and gas company has pulled out of its operations on the outskirts of Palma, a multi-billion-dollar investment to pump liquified natural gas from offshore oilfields in the Indian Ocean. Earlier this year the company had said it requires an area covering a 25-kilometer (15-mile) radius to be secure from rebel violence. Palma is within that area, making it uncertain when the oil giant will resume its investment.