QUITO (Reuters) - Ecuador broke off diplomatic ties with Colombia on Monday, escalating a dispute across the Andean region that erupted after Colombian soldiers raided inside its southern neighbor to kill a guerrilla leader.

Colombia also fueled the tensions by accusing Venezuelan President Hugo Chavez of funding Colombia’s Marxist rebels -- a charge denied by the anti-U.S. president’s government.

The three-nation crisis erupted when Colombia flew troops into Ecuador at the weekend in a bombing raid that killed a leading guerrilla commander of the Revolutionary Armed Forces of Colombia, or FARC.

It was a major blow to Latin America’s oldest guerrilla group. Chavez responded by ordering troops and tanks to the border with Colombia and he warned conservative President Alvaro Uribe that a similar strike on Venezuelan soil could lead to war.

Ecuador has also sent thousands of troops to the border and took another step in the dispute on Monday.

“The Ecuadorean government has decided to break off diplomatic relations,” it said in a letter to Colombia’s foreign ministry.

Colombia earlier said it found documents in the FARC camp inside Ecuador showing evidence that Chavez gave the rebels $300 million and that the slain commander, Raul Reyes, had ties with an official close to Ecuadorean President Rafael Correa.

Both Venezuela and Ecuador denied the allegations.

“The government of Ecuador energetically rejects these accusations which cynically add to the hostile attitude shown in the recent violation of our sovereignty,” Correa’s government said.

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Reyes had been involved in talks with Venezuela, France and Ecuador to win the freedom of hostages held for years in the FARC’s jungle camps. Chavez has brokered those talks, securing the release of six captives since the start of the year.

He called the killing of Reyes a cowardly assassination.

Latin American governments, including diplomatic heavyweight Brazil, also lined up to condemn Colombia’s raid and demand an explanation.