M23 rebels in the Democratic Republic of Congo were reported to have taken the key eastern city of Goma in fierce fighting with government forces that sent streams of refugees fleeing area communities.

The M23 militia, funded and directed by Rwanda, said it had seized the city of Goma, terrifying its people, many of whom sought shelter there after fleeing the rebel advance.

Rwandan-backed rebels marched into east Congo's largest city Goma on Monday and Congolese troops exchanged fire with the Rwandan military across the border, in the worst escalation of a long-running conflict for more than a decade.

Residents of Goma reported gunfire and shelling after rebels overran Congolese troops. U.N. officials estimated that more than 1 million displaced people were now inside the city.

Rebels say they have taken control of the city of Goma in eastern Democratic Republic of Congo, although this has been denied by the government. Residents shared videos of M23 rebels patrolling Goma's main streets following a lightning advance against the Congolese army on Sunday that saw tens of thousands of people fleeing neighbouring towns.

GOMA, Democratic Republic of Congo (Reuters) -Rwandan-backed M23 rebels laying siege to eastern Congo's largest city Goma ordered defending government forces late on Sunday to disarm and surrender, saying they were preparing to enter and take control.

A rebel group aligned with Rwanda says it seized a key trading hub in eastern Democratic Republic of Congo, raising the prospect of a full-blown war between the two Central African nations.