Solomon Islands rebel leader Mr Andrew Nori said his Malaita Eagles militia yesterday killed up to 100 men from the Isatabu militia near the capital, Honiara. The attack involved the use of a captured police gunboat.
"When the patrol boat arrived, it fired its 50-calibre guns and, from eyewitnesses on the boat, there were heavy casualties - and the casualties could be between 50 and 100," Mr Nori said.
"This is a war that will continue for some time. There are a lot of casualties," he added.
As the ethnic conflict on the Solomons intensified, the Malaita Eagles freed the Prime Minister, Mr Bartholomew Ulufa'alu, after holding him at gunpoint for two days.
The Minister of State, Mr Alfred Sasako, said that the Eagles had handed over the Prime Minister to his security guards. "The Prime Minister is free," he said.
The Solomons, about 1,000 miles north-east of Australia, is suffering the worst violence in its history as an independent state, with ethnic groups from the islands of Malaita and Guadalcanal struggling for dominance.
The dispute has simmered since the war, with Guadalcanal militants resentful of migration to their island by Malaitans, who have taken top jobs in Honiara. About 20,000 Malaitans have been forced from their homes on Guadalcanal.
Prime Minister Ulufa'alu was freed in a compromise deal that will involve him presenting himself before parliament next week to face a no-confidence vote.
Like the Eagles, he is Malaitan, but the militia sees him as too conciliatory towards the people of Guadalcanal.
The New Zealand Foreign Minister, Mr Phil Goff, warned that the Solomons could descend into civil war.
"I think there is a real danger that that could occur," Mr Goff told CNN from Wellington.
He said plans were being made to evacuate expatriates in case the violence escalates. The Solomons death toll could not immediately be independently verified, but sources in Honiara said that possibly thousands of militia fighters were engaged in a two-day clash around the Honiara airport.
A Solomons reporter who tried to reach the area said there was heavy machine-gun fire in the jungle that surrounds Honiara.
"It was absolutely scary," said Mr Ufani Efemae, acting editor of the Solomon Star newspaper. "They are seriously doing their business up there and they don't mind how many they kill."
Mr Nori said yesterday's gunboat attack was launched to prevent Isatabu attacking Honiara.
Solomon Voice newspaper editor Ms Carole Colville said the Guadalcanal militants had counter-attacked and were reportedly on the outskirts of Honiara.
Two British MEPs said they made a daring escape from the fighting in the Solomons yesterday when their small plane came under gunfire while taking off.
Mr John Corrie said he and Ms Glenys Kinnock were now safe in a village in nearby Papua New Guinea, but a gunboat was firing shells as they left the Solomons.
"When we taxied down the runway to take off, there was a tremendous fusillade of shots at us and unfortunately a small part of the aircraft stopped functioning and we had to go back into the terminal again," Mr Corrie said. "I am pleased to say when we came out for the second time, there was no problem."
Mr Corrie and Ms Kinnock had been trying to mediate in the Solomons crisis. They had chartered a small plane to flee the islands.