BANGUI (Reuters) - About 10 people were killed in the Central African Republic town of Bambari in an incident that began when a mainly Christian militia group beheaded a Muslim youth leading to reprisals from Muslims, witnesses said.

The incident underscores instability in a country divided along religious lines by violence in 2014 as Christian gangs called the anti-balaka drove Muslims from their homes in the south.

"Two young Muslims leaving the city (on Thursday) were detained by anti-balakas who beheaded one and wounded another. We went to take the body back to the mosque," said Captain Ahmat Nejad, a spokesman for the mainly Muslim Seleka faction.

"This triggered the anger of young Muslims who have carried out reprisals against Christians," he said, speaking from the central town of Bambari, which is a Seleka stronghold.

There was no immediate comment from the government or United Nations peacekeepers.

Father Félicien Endjimoyo of the Diocese of Bambari said as many as 16 people were killed but it was not certain that the perpetrators of the initial attack were anti-balaka militia since the town is controlled by Muslims.

Violence broke out in the former French colony in March 2013 when Seleka rebels seized power. The anti-balaka carried out reprisal attacks killing thousands. Around a million people have been displaced by the fighting.

In an agreement hailed by the U.N. as an important step towards peace, 10 armed groups agreed in May to a peace accord requiring them to disarm and potentially face justice for war crimes.

Interim leader Catherine Samba-Panza plans elections later this year with the support of French and U.N. peacekeeping missions.