Ethiopia claimed yesterday its forces had penetrated deep into south-western Eritrea and were fighting for control of strategic towns in the region.
Officials said Ethiopian troops swept across several lines of Eritrean trenches, seizing important areas and inflicting heavy losses on enemy forces.
Eritrea responded by saying Ethiopian forces had suffered their heaviest losses to date, describing the scene on the MerebSetit front as a "massacre" site.
"The victory that Ethiopia is boasting about is proving illusory," the foreign ministry said in a statement yesterday.
Meanwhile, the UN Security Council prepared to consider a US resolution that would ban arms sales to the two belligerents, more than nine million of whose people are on the brink of starvation because of a regional drought. Diplomats said the council was divided, with Russia in particular opposed to any ban.
"Sanctions, especially those of an unlimited nature, lead only to radicalisation in the positions of both sides and will not help to settle the conflict," the Russian Deputy Foreign Minister, Mr Sergei Ordzhonikidze, told Interfax news agency.
At the Ethiopian military command post of Heret reporters heard artillery exchanges from a vast rocky plain inside Eritrean territory yesterday morning. Ethiopian troops deployed in the region said they had made advances since the latest round of fighting began with a land and air offensive last Friday.
"Our soldiers are doing very well. They have advanced very far," an Ethiopian soldier said at a military base near the town of Inda Selassie, well inside Ethiopia. "But the fighting is heavy, very heavy."
Eritrea said on Monday its forces had downed two Ethiopian aircraft and inflicted heavy casualties in fighting on the western front. A Ethiopian government spokeswoman, Ms Selome Taddesse, admitted one Mi-24 helicopter gunship had been shot down.
Both countries insist they want a peaceful settlement but each blames the other for a series of failed peace initiatives since the war began in May 1998.
Tens of thousands of soldiers are thought to have been killed in trench warfare since the conflict began over a border dispute and trade issues.
Fighting is now centred on the town of Berentu, and the Ethiopian military flew journalists over long lines of deep trenches that snaked across the barren and inhospitable border region, which until a few days ago was home to tens of thousands of soldiers, but now showed little sign of life.
A few Ethiopian troops were working on clearing land mines, but otherwise only a few camels, cows and donkeys roamed the dusty brown plains.
More than 200,000 Ethiopians marched through Addis Ababa in support of the war on Monday, denouncing the UN and Britain for "meddling in Ethiopia's internal affairs".
The European Commission said yesterday it would send €3.29 million (£2.6 million) in humanitarian aid to drought-stricken parts of Ethiopia to add to €2 million in aid already released this year.
"The object of this decision is to provide relief for the suffering of the affected populations by providing funding for the provision of drinking water, basic health infrastructure and the distribution of complimentary food rations," the EU said in a statement.