Anthony Deutsch, Dili – East Timor's capital descended into chaos Saturday as rival gangs set houses on fire and attacked each other with machetes and spears, defying international peacekeepers patrolling in armed vehicles and combat helicopters. The prime minister said a coup attempt was underway.

"What is in motion is an attempt to stage a coup d'etat," Prime Minister Mari Alkatiri told a news conference, as fires raged across the city and terrified residents fled or hid in their homes.

Minutes earlier, Australians troops disarmed up to 40 machete-wielding gang members who had threatened to storm the hotel where the news conference was about to he held.

The Australian troops, who answered an emergency call from the fledgling country's government two days ago, patrolled the city in armored personnel carriers and tanks, and blackhawk helicopters thundered overhead.

Mobs rampaged regardless, and sporadic gunfire was heard in various parts of the city. It wasn't immediately clear if foreign troops engaged in shooting battles.

On Saturday morning, young men armed with slingshots and rocks targeted what they believed were the homes of soldiers who assisted Indonesian army militias responsible for deadly violence that accompanied Indonesia's withdrawal from East Timor in 1999.

The gang members, many of them in their teens, smashed windows and set houses ablaze. Black smoke clouded the sky above the city. Thousands of frightened and panicked residents loaded provisions onto trucks and cars and fled to embassies, churches and nearby villages.

The number of casualties from Saturday's violence wasn't known, but several ambulances raced through the streets with sirens blaring and gangs clashed in several areas of town.

The violence, triggered by the March firing of 600 disgruntled soldiers – nearly half the 1,400-member army – is the most serious crisis East Timor has faced since it broke from Indonesian rule in 1999.

The impoverished nation received millions of dollars in international aid over the last seven years, much of it focused on building up the military.

After staging deadly riots last month, the sacked troops fled the seaside capital, Dili, setting up positions in the surrounding hills and threatening guerrilla war if they were not reinstated.

They started ambushing soldiers in the capital Tuesday, sparking days of pitched gunbattles with the military that have so far killed 23 people.

The dispute, fueled by simmering tensions in a nation divided along east-west lines, has also drawn in ordinary citizens, some frustrated by poverty and unemployment. Bands of angry youths were picking up arms, some, it appeared to settle old scores.

A mob torched the house of a government minister, killing five children and an adult whose charred bodies were found Friday. Ten unarmed police also were gunned down by soldiers as they left their headquarters in downtown Dili under UN escort on Thursday.

East Timor's government asked for international help, saying it could not control the situation, and hundreds of Australian troops have already arrived. New Zealand, Malaysia and Portugal have also agreed to help, with some advance forces already on the ground.

Civilian militias roamed neighborhoods in southern Dili early Saturday, throwing rocks through the windows of the small, tin-roofed houses and setting them on fire.

Two Australian tanks moved into the neighborhood, Blackhawk helicopters hovering overhead, and scores of heavily armed troops patrolled the streets.

Houses were set alight in other parts of town as well. Several motorcycles abandoned on roads were also smoldering after being set ablaze.

In the neighborhood of Suke Mas, Australian soldiers rounded up two to three dozen civilians armed with machetes, spears and other handheld weapons, questioning them and searching vehicles.

"There is no solution," priest Jose Antonio said at a church where hundreds of people have sought shelter. Hatred between the warring factions runs long and deep, he said, "and this is an opportunity for revenge."

The dismissed soldiers are largely from the country's west, while the military's leadership originates from the east.

Many of the renegade soldiers are viewed as having been sympathetic to Indonesia when its former province was fighting for independence, said Damien Kingsbury, an Australian academic and expert on Indonesia and East Timor.

They claim they were denied promotions and coveted assignments, because of discrimination in the armed forces.

Foreign Minister Jose Ramos Horta said Friday he believed the issues that triggered the violence were "still capable of resolution."