* Earthquake hit in early hours, felt across Italy

* People buried under rubble; rescuers rush to area (Updates with prime minister giving new death toll, quotes)

ACCUMOLI, Italy, Aug 24 (Reuters) - An earthquake flattened towns in central Italy in the early hours of Wednesday, killing at least 120 people and burying some alive in their sleep, with volunteers and firefighters racing to free those trapped under mounds of rubble as darkness fell.

The quake razed mountain homes and buckled roads in a cluster of communities some 140 km (85 miles) east of Rome. It was powerful enough to be felt in Bologna to the north and Naples to the south, each more than 220 km from the epicentre.

“I was blown away by what I saw. We haven’t stopped digging all day,” said Marcello di Marco, 34, a farmer who travelled from the town of Narni some 100 km away to help with emergency services’ rescue efforts in the hamlet of Pescara del Tronto.

In the nearby village of Accumoli, a family of four, including two boys aged 8 months and 9 years, were buried when their house imploded.

As rescue workers carried away the body of the infant, carefully covered by a small blanket, the children’s grandmother blamed God: “He took them all at once,” she wailed.

The army was mobilised to help with special heavy equipment and the Treasury released 235 million euros ($265 million) of emergency funds. At the Vatican, Pope Francis dispatched part of the Holy See’s tiny firefighting force to help in the rescue.

Rescue workers used helicopters to pluck survivors to safety in more isolated villages cut off by landslides and rubble.

Aerial photographs showed whole areas of Amatrice, last year voted one of Italy’s most beautiful historic towns, flattened by the 6.2 magnitude quake. Many of those killed or missing were visitors.

“It’s all young people here, it’s holiday season, the town festival was to have been held the day after tomorrow so lots of people came for that,” said Amatrice resident Giancarlo, sitting in the road wearing just his underwear.

“It’s terrible, I’m 65 years old and I have never experienced anything like this, small tremors, yes, but nothing this big. This is a catastrophe,” he said.

Scores of people are believed unaccounted for, with the presence of the holidaymakers making it difficult to tally.

Prime Minister Matteo Renzi, who gave the latest toll figure after visiting the area, called for national unity.

“We Italians are very good at arguing and being polemical but now let’s stand in solidarity and pride alongside those who are rescuing others,” he said. “Today is a day for tears. Tomorrow we can talk of reconstruction.”

VOICES UNDER THE RUBBLE

Patients at the badly damaged hospital in Amatrice were moved into the streets and a field hospital was set up.

“Three quarters of the town is not there anymore,” Amatrice mayor Sergio Pirozzi told state broadcaster RAI. “The aim now is to save as many lives as possible. There are voices under the rubble, we have to save the people there.”

Accumoli’s mayor, Stefano Petrucci, said some 2,500 people were left homeless in the local community of 17 hamlets.

Residents responding to wails muffled by tonnes of bricks and mortar sifted through with their bare hands before emergency services arrived with earth-moving equipment and sniffer dogs. Wide cracks had appeared like open wounds on the buildings that were still standing.

The national Civil Protection Department said some survivors would be put up elsewhere in central Italy, while others would be housed in tents that were being dispatched to the area.

Most of the damage was in the Lazio and Marche regions, with Lazio taking the brunt of the damage and the biggest toll. Neighbouring Umbria was also affected. All three regions are dotted with centuries-old buildings susceptible to earthquakes.

The U.S. Geological Survey said the quake struck near the Umbrian city of Norcia. Italy’s earthquake institute INGV registered it at 6.0 and put the epicentre further south, closer to Accumoli and Amatrice.

It was relatively shallow at 4 km below the earth’s surface.

INGV reported 150 aftershocks in the 12 hours following the initial quake, the strongest measuring 5.5.

Residents of Rome were woken by the tremors, which rattled furniture, swayed lights and set off car alarms in most of central Italy.

“It was so strong. It seemed the bed was walking across the room by itself with us on it,” Lina Mercantini of Ceselli, Umbria, about 75 km away from the hardest hit area, told Reuters.

Italy sits on two fault lines, making it one of the most seismically active countries in Europe.

The last major earthquake to hit the country struck the central city of L’Aquila in 2009, killing more than 300 people.

The most deadly since the start of the 20th century came in 1908, when an earthquake followed by a tsunami killed an estimated 80,000 people in the southern regions of Reggio Calabria and Sicily.