The Tibetan capital of Lhasa was on the brink of chaos today as the fiercest anti-government protests in almost 20 years erupted into violence between Chinese security forces and protestors wielding iron bars.

Armed police used water cannons and teargas on the crowds, and witnesses say security vehicles were set on fire and Chinese drivers were carried off with bloodied faces after being beaten by a mob of young Tibetans.

The US embassy in Beijing said its citizens in Lhasa had reported gunshots being fired in the city. The embassy emailed an advisory to Americans warning them to stay away from the city, now in its fifth day of anti-Chinese protests.

Coming just months before the start of the 2008 Olympics, the protests against Beijing rule threaten to overshadow preparations for the games.

A resident told the Guardian that he heard an explosion and around 10 shots every minute at one point, but thought it was teargas rather than bullets being fired because he saw people running from plumes of smoke and covering their mouths.

"I am too afraid to go out," the source, who asked to remain anonymous, said. "It is chaos out there."

The source, who is from the Chinese Han ethnic group, said he saw Tibetans attack two fire engines.

"I saw Tibetans throwing stones at the vehicles. They dragged drivers from vehicles, took off their uniforms and helmets, then beat them.

"The chanting mob beat up around five or six drivers who had to be carried away with blood on their faces ... then they put a motorbike under the fire engine and set fire to it so the engine was burned."

The report was difficult to confirm. The Chinese government has yet to make a statement, and communications with the tightly-controlled Himalayan region are difficult even during calm periods.

But a blogger who writes from Lhasa under the name Beifang gave a similar report on his blog.

"Police cars and fire engines were outside smashed and burned. A lot of Tibetans ran towards Dazhao [Jokhang] temple. I heard gunshots. Five army police vehicles drove that way. A large number of armed police followed. A few people with blood on their faces were taken away."

Tibetan support groups overseas said they were hearing reports of a fire and protests near the Tromsikhang market near the Jokhang temple in central Lhasa.

According to the Free Tibet campaign, there were also protests today in the Labrang monastery in Gansu province, where 200 monks led demonstrations on the streets. The group said this showed the protests were gathering momentum.

Since the first protest by monks on Monday, thousands of armed police have locked down monasteries in and around Lhasa. Witnesses said today's protestors were mostly lay Tibetans.

China's Xinhua news agency reported that shops had been set on fire in Lhasa but gave no other details.

The International Campaign for Tibet said two monks at the Sera monastery had stabbed themselves and others had gone on hunger strike.

About a dozen monks were reportedly detained on Monday, when several hundred from the Sera and Drepung monasteries took to the streets to mark the 49th anniversary of a failed uprising against Beijing. Similar protests took place in the Ganden and Lutsang monasteries in Qinghai (known in Tibetan as Amdo) where hundreds of monks reportedly chanted slogans calling for their exiled leader, the Dalai Lama, to return.

The upsurge in activism comes amid growing frustration with the lack of progress in talks between representatives of the Dalai Lama and Beijing.