Islamist armed group Ansar Dine, among the groups occupying the north of Mali for nine months, has taken control of the central Malian city of Kona in Mopti province, reports said.
Local sources told Al Jazeera on Thursday that the small city is in flames after gun fights between government troops and the rebels.
Thursday's clashes, which included heavy weapons fire, came two days after Mali's army stopped an attack Kona, which is located near the edge of the government-controlled zone and the regional capital of Mopti, the gateway to the south.
Also on Thursday, soldiers reported having driven Islamist rebels from Douentza, a strategic town in the northeast.
"The army has retaken Douentza. We just had confirmation that the jihadists have withdrawn following the clash," an officer at the military junta headquarters told the Reuters news agency on Thursday.
The fighters controlling the north, including Al Qaeda in the Islamic Maghreb (AQIM), the Movement for Oneness and Jihad in West Africa (MUJAO), and Ansar Dine (Defenders of the Faith), could not immediately be reached for comment.
Burkina Faso, which is mediating in the conflict, called for restraint.
"We are concerned about the situation in the north, where troop movements have been reported," the country's foreign minister, Djibrill Bassole, told ORTM state television after meeting with Mali's interim president and prime minister.
"We call on all parties to hold their fire... and above all for all warring parties to create conditions of trust and serenity that will help create a constructive and peaceful dialogue."
Bassole's statement was recorded before the reports of clashes in the Mopti area came in.
Hundreds of demonstrators gathered on Wednesday on the streets of Mali's capital, Bamako, and in the southwestern city of Kati, calling for the liberation of the north and the resignation of Mali's interim president, Dioncounda Traore.
Demonstrators in Bamako set car tyres alight and divided the city in two by obstructing traffic on two of the three bridges that link it over the Niger River.
In Kati, youths mounted barricades, cut off traffic and chanted slogans demanding Traore's departure.
The government later announced it was indefinitely closing all schools in both towns.
Because of the protests, the weekly cabinet meeting was postponed until Thursday "for security reasons."
The ministry for internal security said one person was wounded and hospitalised in Bamako. Six other people were detained.
Mali has been cut in two since March last year, when armed groups capitalised on a power vacuum created by a military coup in Bamako to seize control of the north.
Talks initially planned for Thursday between the Malian government and two of the armed groups in the north were dropped to give all parties more time to prepare.
Ansar Dine and the Azawad National Liberation Movement, an ethnic Tuareg separatist group, are homegrown movements that mediators hope can be persuaded to reject the more hardline Islamists who have been their sometime allies.
The Economic Community of West African States has 3,300 troops on standby for a mission to reclaim northern Mali that received UN Security Council approval last month.
But no timetable has been given for an intervention, and senior UN officials have warned no deployment will take place before September.