Lieutenant Su Aung Doi is lying face down on a wooden table, the back of his head sliced wide open from a mortar round that exploded a metre from his foxhole on the frontline just hours earlier. Blood is trickling down his neck and on to the hospital floor as a doctor extracts the metal splinters from his skull and stitches the flesh back together, with no anaesthesia and a single lamp to illuminate the surgery.

In the same room, nurses tend to a stunned soldier with shrapnel in his forehead, while in the corner an officer is screaming as doctors rub disinfectant over mortar splinters in his feet and arms.

Up the blood-stained stairs of Laiza's civilian hospital, soldiers whose legs have been recently amputated hobble past a closed operating room housing a soldier with leg wounds so deep that his thigh muscles are spilling on to the metal table. And in the car park outside, army-issue pickup trucks drop off still more soldiers straight from the battlefield, who are carried in one by one and dropped on stretchers covered in other soldiers' blood.

"Almost all of our battalion were hurt today. There were hundreds of Burmese army shooting RPG [rocket-propelled grenades] – it was just raining mortars," officer Sin Wah Naw, 34, says from a hospital room shared with three soldiers from his company. "They would stop shooting for a few seconds and I would run for safety and then it would begin all over again."

It has been just a week since the Burmese government initiated a ceasefire in Kachin state, where armed ethnic insurgents, under the banner of the Kachin Independence Army (KIA), have been fighting for greater autonomy for the past 50 years.

The Kachin are a Christian-majority group in Buddhist-majority Burma, who say they have long been oppressed by the government. While rebels have held pockets of territory throughout this mountainous terrain for decades, they are struggling to maintain the last remaining stronghold of their headquarters in Laiza, a jungle outpost called Hka Ya Bum, which is under heavy attack by the Burmese military.

If that falls, which many fear could happen sooner than later, locals say that their only option will be to flee to China.

The government's attacks on Kachin state, which began in July 2011 after a 17-year-ceasefire fell apart, have in the past month included heavy artillery, as well as the use of helicopters and jet fighters. KIA officials reckon that as many as 1,200 mortar rounds were fired in two hours against Hka Ya Bum on Thursday, the most ever recorded in their decades of war.

The escalating conflict has soured Burma's seeming efforts for peace in a nation that only recently ended nearly 50 years of military rule. The KIA, whose headquarters are in Laiza – a sleepy town whose shops are mostly shuttered closed – is the only major ethnic rebel group not to have reached a ceasefire agreement with President Thein Sein, who came to power in 2011 and has since instituted a series of economic and political reforms.

"Ever since the KIA started this revolution, whenever we have had a ceasefire, it is the Burmese who break it," says the KIA's spokesman, La Nan. "The ceasefire agreed on 18 January was made unilaterally by the Burmese and broken by the Burmese," he said.

"From past experience, a 'ceasefire' means preparation for future assault. But peace is not just the absence of warfare. We are demanding the rights of our ethnic nationality. Once we have that which is rightfully ours, then we have no reason to fight."

The fighting has displaced as many as 100,000 Kachin, according to relief agencies working in the state, most of which lack food, medicine and other supplies because most roads to KIA-controlled territories have been blocked by the Burmese government.

Doi Pyi Sa, who heads the internally displaced people (IDP) and refugee relief committee of the KIA's political arm, the Kachin Independence Organisation (KIO), says that Kachin state is in the midst of a humanitarian crisis. "Many IDPs have had to abandon their villages [all across Kachin state] and have fled into KIO territory, which is a humanitarian crisis in itself, and others have fled to stay with friends and relatives, so we don't know how many they are.

"But the real issue is that we may one day have to flee into China. The Chinese government has told us they've cleared space to create refugee camps but they want us to build the camps. That's not what we want. We don't want to have to go to China until it's absolutely compulsory. But one day there won't be any option but for us to flee into China. The issue is that the policy used by China is that when they don't hear any fighting anymore, they push back the refugees like they did in August [last year].

"But if the Burmese soldiers take Laiza, there will be thousands of them in the villages [all across Kachin state], so no one will want to go back home. But staying in China will be hard, because we won't be allowed to leave the camps, and that could make us vulnerable to human trafficking, which has already happened [to Kachin people] in China."

At Je Yang, Laiza's largest refugee camp, nearly half of the 7,300 inhabitants are under the age of 15. Bamboo tents house three families at a time, a small marketplace sells fruit and veg, and men are busy with hammers and saws building a new school to replace the open-plan classrooms that currently shelter 40 students at a time.

"This is no place for children," says the school headteacher, Nawhpang Hkun San. "The Burmese army has taken a post just up the hill here and there's often mortar and gunfire. We're at risk here, and the children know it. Some of them are too terrified to even come to school."

Some displaced people are in highly precarious situations. Just past the military hospital outside Laiza, two families have taken refuge on the side of the road in a confluence of bushes where they sleep through the cold winter nights under banana leaves and tarpaulins. Their meagre possessions – a transistor radio, a wall clock and an old kettle – are scattered across the dirt amid cow pats, smatterings of hay and a few floor mats. "We left everything behind – all of our clothes, our farming equipment, even our blankets – when the Burmese army burned our village down," says Dashi Roi, 48, a farmer who fled by foot towards Laiza with her husband and two cows last week. "Sometimes we have nothing to eat. We scavenge for vegetables, but we don't always find them."

After Thursday's heavy assault on Hka Ya Bum, the situation in Laiza is precarious. A nightly candlelit vigil that snakes through the city is one way in which locals hope for peace, but the real test will come from the Burmese government itself – and whether it is prepared to enter into political dialogue with a group that has promised to never back down.

"Even if Hka Ya Bum is overrun, the Burmese army still can't come to Laiza because there are still many posts to take," a defiant La Nan told the Guardian. "The Burmese army has already spent millions of dollars and many lives getting this far. Even if they come to Laiza, they are entering a killing field … We will never surrender."

It's a position to which many soldiers seem to hold strong. At Laiza cemetery, where new graves are being dug, up at an uncomfortably high frequency, mortar shells could be heard Friday landing on the mountain beyond as a pickup truck carrying soldiers and the coffin of their colleague, 25-year-old Labang Tang Gun, roared up the road. The soldiers sang a war hymn, shovelled dirt on to the freshly dug grave, and then sped back off towards the explosions in the hills.