Many Rohingya Muslims have fled from their homes and tens of thousands of refugees are now in displacement camps along Burma's west coast. Peter Pattisson

At least 130 refugees fleeing violence in western Burma have drowned after the overcrowded fishing boat they believed was carrying them to safety capsized and sank. Six survivors were rescued by local fishermen, local activists said.

The shipwreck is the single most lethal incident linked to the ongoing clashes between the Muslim Rohingya minority and local Rakhine Buddhists in Burma's Arakan state. The death toll has reached 80 in the last 11 days, according to official estimates. Thousands of homes have also been destroyed, along with places of worship.

Exact details of the wreck are unclear. But there were fears it could fuel further communal violence, which itself threatens to jeopardise the reform process in Burma. Last week UN secretary general Ban Ki-moon said that "the vigilante attacks, targeted threats and extremist rhetoric must be stopped [or] … the opening up process being currently pursued by the government is likely to be jeopardised".

The crisis has also posed a major challenge to Nobel laureate and pro-democracy campaigner Aung San Suu Kyi, who has been criticised for failing to speak out strongly enough on the issue. Her National League for Democracy party has remained silent since releasing a brief statement on 24 October.

"[Aung San Suu Kyi] has an obligation to do something about the crisis but for some time she has been silent," said Abu Tahay, a Rohingya politician in Yangon, the country's commercial and cultural capital.

A first round of violence in June led to 75,000 people, mainly Muslims, fleeing their homes. The clashes over the last 10 days have forced nearly 30,000 more from their villages, according to the United Nations. The vast majority are Rohingya, who are not recognised as citizens of Burma and suffer widespread discrimination. Ethnic Rakhine communities have also suffered.

"I am very worried about the coming weeks. The situation is very unstable. In five minutes the violence could be everywhere," Abu Tahay said.

On Wednesday a standoff continued on Ramree Island, close to the centre of recent clashes, as security forces attempted to protect Rohingya villages from crowds of local Rakhine.

About 7,000 new refugees, including many who had been living on boats for several days, landed near the port town of Sittwe on Tuesday, NGO workers said.

Many had been forced to leave their homes in the town of Kyauk Ni Maw, where the rape and murder of a Buddhist woman, allegedly by Muslims, in May sparked the sectarian violence that engulfed much of the state the following month.

Hundreds have taken to boats or sought refuge on unpopulated coastal islands over recent days, refugee sources said.

Neighbouring Bangladesh, which already has an estimated 300,000 Rohingya refugees, has closed its border, an act which activists claim violates international law.

Rohingya campaigners on the Bangladeshi side of the border contacted by the Guardian said they had seen boats full of refugees offshore which were unable to land despite running low on water and food.

Thousands of Rohingya try to leave Burma by boat every year. Many vessels are unseaworthy and every year several sink.

Chris Lewa, an activist who tracks the ships, said that about 7,000 made the journey from Burma to Malaysia, often via Thailand, during the 2010-2011 sailing season.

"They are often loaded out to sea and, though some are in better condition than others, they are all packed," she said.

Refugees pay between $1,700 (£1,000) and $2,000 for a place but usually only put down a $400 deposit.

Experts say the crisis is rooted in ethnic and religious tensions that were suppressed during nearly 50 years of brutal military rule.

Hand grenades were thrown on Sunday night at two mosques in Karen state in the east of the country, causing no casualties, domestic media reported.

Some of those now fleeing their homes were Burmese Muslims from the officially recognised Kaman minority. "It's the first time that we've seen the Kaman targeted. That's very worrying," said Mabrur Ahmed, of Restless Beings, a UK-based human rights group.

The UN estimate there are 800,000 Rohingya in Burma. Although many have lived in the country for generations, they are considered illegal immigrants and face widespread hostility.

In June President Thein Sein suggested the best solution to the violence was that the UN resettle Burmese Rohingya outside the country.