Thousands of South Sudanese have been killed in over a week of violence with reports of bodies piled in mass graves, the UN says, amid ongoing battles threatening to slide into civil war.

The top UN humanitarian chief in the country, Toby Lanzer, says there is "absolutely no doubt in my mind that we're into the thousands" of dead, the first clear indication of the scale of conflict and ethnic violence engulfing the world's youngest nation.

The comments come as president Salva Kiir's government celebrates the important and strategic recapture of the key town of Bor, although large areas remain out of their control.

Bor, the capital of Jonglei state, last week fell to rebels loyal to former vice-president Riek Machar, who was sacked by Mr Kiir in July.

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UN rights chief Navi Pillay says a mass grave was found in the rebel-held town of Bentiu, while there were "reportedly at least two other mass graves" in the capital Juba.

"We have discovered a mass grave in Bentiu, in Unity State, and there are reportedly at least two other mass graves in Juba," Ms Pillay said.

The grim discovery follows escalating battles between troops loyal to Mr Kiir and those backing his rival.

The conflict in South Sudan erupted in the capital Juba on December 15 but has spread to oil-producing regions and beyond.

It is rapidly dividing the two-year-old nation on ethnic lines, pitting Mr Kiir's Dinka tribe against the Nuer tribe to which Mr Machar belongs.

The official toll nationwide has stood at 500 dead for days, although numbers are feared to be far higher.

Witnesses that AFP has spoken to recount a wave of atrocities, including an orchestrated campaign of ethnic mass killings and rape.

"Targeted attacks against civilians and against United Nations personnel, such as those that have occurred in Juba and Jonglei, could constitute war crimes or crimes against humanity," said Adama Dieng, the UN special adviser to the secretary-general on the prevention of genocide.

Much of the fighting has involved Dinka and Nuer factions of the Sudan People's Liberation Army, with militias and marauding youths also reported to be attacking opposing ethnic groups.

Leaders insist fighting is political, not tribal

Western powers and east African states, keen to prevent more chaos in a fragile region, have tried to mediate between Mr Kiir and Mr Machar.

Both men say the conflict is political, not tribal, but 40,000 people have sought refuge in the bases of UN peacekeepers amid widespread fears of ethnic killings.

Sorry, this video has expired Tribal rifts spark fear of civil war in South Sudan ( David Lewis )

"My cousin and nephew were both caught and executed. How can I leave this place?" asked Gatjang, a 29-year-old Nuer, at a UN compound in Juba crammed with about 12,000 fearful civilians.

"Even here. What if they sneak inside and attack us?"

On Tuesday Mr Kiir said government troops were back in Bor after losing the town on Sunday.

"Forces loyal to the government have taken Bor and (are) now clearing whatever forces that are remaining there," he told journalists at his office in Juba.

Government denies responsibility for mass grave

The Juba government denies responsibility for the mass grave in Bentiu, saying via Twitter: "Bentiu is currently under the control of the rebel leader Riek Machar - we have nothing to do with that area & the mass killings #SouthSudan."

While both men have said they are open to dialogue, Mr Machar said on Monday he would only negotiate if his detained political allies are released, a demand the government swiftly rejected.

"I am extremely concerned that South Sudan risks spiralling into a disaster for both its own people and the region," said Catherine Ashton, the European Union's foreign policy chief.

"Such a situation can, and must, be avoided."

Ms Pillay urged both sides to protect civilians, saying political and military leaders could be held to account for crimes.

The United Nations says it will send more peacekeepers to South Sudan as fighting between rebels and government troops (pictured) rages across the country. ( Reuters: Goran Tomasevic )

"Mass extrajudicial killings, the targeting of individuals on the basis of their ethnicity and arbitrary detentions have been documented in recent days," she said.

Last week Nuer and Dinka soldiers fought at Rubkona army barracks in a village just outside Bentiu.

The fighting has hit oil production, the economic lifeline of a government that gets 98 per cent of its revenue from oil.

Petroleum minister Stephen Dhieu Dau told Reuters on Tuesday that output had fallen by 45,000 barrels per day (BPD) to 200,000 BPD after oilfields in Unity state shut down due to clashes.

Troops loyal to Mr Machar control most of Unity state, but officials say government forces still hold the oil fields which are some of the most heavily militarised areas in the country.

The UN Office for the Coordination of Humanitarian Affairs said the crisis had displaced an estimated 81,000 people, though the number was likely to be higher.

Meanwhile the UN Security Council has approved a bid to send 6,000 more peacekeepers to South Sudan.

Reuters/AFP