The Chinese authorities yesterday blamed exiled Muslim Uighur separatists for trouble in the restive western province of Xinjiang which killed at least 156 people and injured hundreds more. But the government was in turn accused of heavy-handed repression which, according to the claim of one Uighur representative, may have left up to 400 people dead.

The violence, which may have been the deadliest in China since Tiananmen Square in 1989, began in the regional capital Urumqi on Sunday night when tensions between Uighurs and Han Chinese boiled over. State television showed images of rioters throwing rocks at police, smashing buses and setting fire to shops and cars, as well as bystanders holding faces streaming with blood. Burnt-out buildings and vehicles continued to smoulder yesterday, broken glass littered the roads and bloodstains dotted the concrete.

It was the second major eruption of ethnic violence in China in less than 18 months. In March last year, protests and riots flared up in the Tibetan capital, Lhasa, with authorities saying 19 people were killed and exile groups saying the real figure was 200. The latest trouble in Xinjiang also comes at an embarrassing time for the Communist Party in Beijing, just three months before it is due to celebrate the 60th anniversary of the founding of the People's Republic of China.

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Urumqi was under lockdown last night. At the Grand Bazaar, usually populated by Uighur vendors touting a dazzling array of daggers or a rogue camel, columns of camouflage-wearing paramilitary police carrying batons and shields marched in a show of strength, defying any more would-be protesters or rioters. And there were cyber restrictions too, with reports that Urumqi residents were unable to access the internet.

The state-run Xinhua news agency reported that 700 suspects had been arrested, including more than 10 key players who fanned the trouble, and that authorities were searching for another 90.

There were other reports that students had been targeted. Mamet, a restaurant worker in the city, told the Associated Press about a raid he had witnessed outside Xinjiang University. "First they fired tear gas at the students. Then they started beating them and shooting them with bullets," he said. "Big trucks arrived and students were rounded up and arrested."

Amnesty International called on Beijing to "fully account for all those who died and have been detained" and demanded "a fair and thorough investigation" into the weekend's events

However, the government was already apportioning blame yesterday. "The violence is a pre-empted, organised violent crime. It is instigated and directed from abroad, and carried out by outlaws in the country," it said in a statement.

Xinjiang's Governor, Nur Bekri, went on state television to accuse Rebiya Kadeer – a Uighur businesswoman who was jailed for years in China before being released into exile in the United States – of stoking the violence. "She had phone conversations with people in China on 5 July in order to incite, and websites ... were used to orchestrate the incitement and spread propaganda," he said.

It was a charge swiftly denied. "It is a common practice of the Chinese government to accuse me for any unrest [in this region] and His Holiness the Dalai Lama for any unrest in Tibet," Ms Kadeer, who heads the World Uyghur Congress (WUC), said in a statement.

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There were several conflicting reports, not only of the death toll but whether the victims were Uighurs or Han Chinese. Xinhua said 156 people had been confirmed as killed, and the number was likely to rise. It quoted a senior security official as saying many of the bodies he had seen were Han. "It was like a war zone here, with many bodies of ethnic Han people lying on the road," said Huang Yabo, deputy director of the Urumqi Public Security Bureau.

But in a telephone interview, Alim Seytoff, a spokesman for the WUC, put the death toll closer to 400. "Most of the dead are Uighurs, shot and killed by the Chinese security forces," he said, adding that protesters had been confronted by four kinds of police (regular, anti-riot, Special Police and the People's Armed Police), who had used "lethal force" to disperse them. "This is a very dark day in the history of the Uighur people".

Tensions between the two ethnic groups have risen as the government has encouraged Han migration to Xinjiang. The Uighurs – who now make up just half of the region's 20 million people – complain that they are being culturally destroyed, citing Beijing's plans to raze their ancient Silk Road city of Kashgar as a prime example. The other grievance is that they are being muscled out of jobs and other economic opportunities and this is particularly pertinent in the main city Urumqi where the Han are in the majority.

It is unclear what prompted the hundreds of Uighurs to take to the streets in protest on Sunday. There were reports that a June dispute in one of the region's toy factories between Uighur and Han workers, in which two Uighurs died, was the trigger, but other China-watchers suggested it might be simply pent-up anger at long-standing grievances. There were reports last night that protests had spread to Kashgar, but analysts were doubtful that they will snowball into a mass movement that will really trouble Beijing. "The Chinese are very good at putting things down and keeping a lid on them when they really want to," said Brad Adams, the Asia Director of Human Rights Watch.

The Chinese President Hu Jintao was in Italy yesterday ahead of this week's G8 summit. At a press conference after meeting the Italian ceremonial head of state, Giorgio Napolitano, he made no mention of the situation back home.

Heroine or enemy? Rebiya Kadeer

The woman the Chinese government accuses of masterminding the Uighur protests over the weekend is a 62-year-old former laundry lady with 11 children who lives more than 6,000 miles away from the scene of the violence: there is no doubt that Rebiya Kadeer makes an unlikely radical figurehead.

In 1996, the one-time laundry worker was a successful businesswoman in Xinjiang nicknamed the Millionairess, and a Communist Party member. But in 1997, Chinese security forces killed Uighur protesters in the city of Gulja. Outraged, Kadeer used her considerable influence to mobilise opposition. Two years later, she was imprisoned. Released in 2005, she fled to join her husband in the United States, where she has continued her efforts as president of the World Uyghur Congress.

To the West and her own people, she is a heroic freedom fighter; to the Chinese government, she is a subversive enemy of the state. Her supporters insist she had nothing to do with the demonstrations that erupted in Urumqi. But there is no doubt that she remains a hugely influential voice.