Dili – Foreigners fled East Timor as security forces fired warning shots in clashes with students yesterday, a day after two people were killed in riots that prompted angry mobs to loot shops and torch the prime minister's house.

The unrest was the worst in East Timor since it became the world's newest nation in May, and highlighted the rising discontent with the government.

The number of arrests went up to 80 even as the government vowed yesterday to punish those responsible for violence in which dozens of buildings were left in ruins – including those of Prime Minister Mari Alkatiri and two of his brothers.

Mr Alkatiri announced the formation of a five-member inquiry, made up of MPs, government officials and an NGO, to "see who is behind all this".

Meanwhile, security forces fired warning shots in clashes with students yesterday. The streets in Dili were otherwise mostly empty. Witnesses say the violence was sporadic.

Trouble started on Tuesday after 500 students gathered at police headquarters in Dili to demand the release of a fellow student arrested for alleged gang violence.

Dili's airport was yesterday crowded with relatives of UN staff and other non-governmental workers trying to flee. President Xanana Gusmao walked around the city to inspect damage and visit the wounded. He took to the airwaves to call for calm.

"If you burn people's houses and steal their possessions, they will leave," he said. "If they leave, what is going to happen to us? We will be alone with our poverty, without help, forgotten."