Sudan severed diplomatic ties with Chad on Sunday, accusing Ndjamena of backing a first Darfur rebel assault on Khartoum, and slapped a multi-million dollar price on the head of the alleged mastermind.
The government said it had repulsed the assault by the Justice and Equality Movement (JEM), allegedly backed by Ndjamena, which saw the insurgents reach Khartoum's outskirts with the declared intent of toppling the regime.
"We are forced to sever diplomatic relations with this regime" in Chad, President Omar al-Beshir said on state television following the attack on the capital's twin city of Omdurman just across the river Nile.
"We place the entire responsibility for this attack on Chad," he said, dressed in his field marshal's fatigues.
Chad said it regretted Khartoum's decision, denied any involvement in the attack and condemned a raid on the Chadian embassy. "Chad can only take note of this hasty decision with regret," the government said in a statement.
Uniformed Sudanese men ransacked the Chadian mission in Khartoum, taking away documents and computer equipment, it added.
The Darfuri attack in broad daylight, one day after Khartoum warned that rebels were marching towards the capital, marks the first time regional rebels have ever brought decades of violence so close to the seat of Sudanese power.
A senior official in the military command told the state SUNA news agency that 250 million pounds (123 million dollars) would be paid to anyone who arrests JEM leader Khalil Ibrahim or provides information on his whereabouts.
Beshir convened an emergency session of the national security council, that included Salva Kiir, the leader of south Sudan which fought its own two-decade civil war until reaching a power-sharing agreement with Khartoum.
Government forces were on Sunday hunting down remnant rebel forces all over the capital and in neighbouring states, rounding up arms and explosives.
The official SUNA news agency said the Sudanese military had killed a leading JEM commander, had chased down, fought and wiped out a 45-man rebel force 50 kilometres (30 miles) from Omdurman and arrested 300 rebels.
Omdurman remained under curfew but restrictions were lifted elsewhere. The Egyptian news agency MENA said Khartoum international airport was closed and commercial airlines told passengers that flights to Sudan were cancelled.
There was no clear indication of casualty figures from either side.
JEM's deputy chief of staff Suleiman Sandal said that his forces had taken Omdurman but were having trouble with the urban fighting having come from the desert of Darfur, and had suffered casualties.
"This is the first time for them to fight in towns and now we are gathering our troops and thinking about what we're doing," he told AFP.
He said his forces had been prevented from crossing a key bridge into Khartoum overnight after taking three days to drive from Darfur in a convoy of 400 vehicles in a bid to topple the regime.
Foreign ministry official Ali Yousif said that Sudan had evidence of communication between the rebels, the Chad government and the Chadian embassy in Khartoum. He said five or six Chadian diplomats were expected to leave.
One Omdurman resident told AFP he could see smashed cars in the streets and plumes of smoke rising after a night of fighting.
"Up until six o'clock (0300 GMT) this morning, there was very heavy bombardment. I can see smoke out of the window and smashed cars from the roof of the building," said the father of one.
"We're just being told to stay in and keep a low profile," a US diplomat said, also asking not to be named.
In February, rebels allegedly backed by Khartoum advanced as far as the gates of the presidential palace in Ndjamena before being repulsed.
Sudanese television on Saturday showed images of what it said were captured rebels cowering in the back of an armoured personnel carrier, along with footage of captured rebel all-terrain vehicles, field artillery and shells.
The White House said it was "very concerned" about the violence and urged both the Darfur rebels and government forces to cease hostilities.
The European Union's foreign policy chief, Javier Solana, said "the latest events should provide the opportunity to trigger the strong impulse necessary to find a lasting solution."
UN Secretary General Ban Ki-moon strongly condemned the "use of armed force and military means by JEM" and called for "an immediate cessation of fighting."