At least eight people were killed and many wounded, authorities say, in the worst communal violence since a reformist government replaced a junta last year and vowed to forge unity in one of Asia's most ethnically diverse countries.

The fighting erupted on Friday in the Rakhine State town of Maungdaw, but has spread to the capital Sittwe and nearby villages, prompting the government to declare a state of emergency late on Sunday and impose a dawn-to-dusk curfew. Foreign aid workers have begun pulling out, aid sources said.

Plumes of black smoke rose over parts of Sittwe, a port town of mainly wooden houses where Buddhists and Muslims have long lived in uneasy proximity. Some Buddhists were seen carrying bamboo stakes and other makeshift weapons.

"We have now ordered troops to protect the airport and the Rakhine villages under attack in Sittwe," Zaw Htay, director of the President's Office, told Reuters. "Arrangements are under way to impose a curfew in some other towns."

The unrest undermines the image of ethnic unity and stability that helped persuade the United States and Europe to suspend economic sanctions this year, while increasing curfews could threaten tourism and foreign investment - rewards for emerging from nearly half a century of army rule.

It might also force reformist President Thein Sein, a former general, to confront an issue that human rights groups have criticised for years: the plight of thousands of stateless Rohingya Muslims who live along Myanmar's border with Bangladesh in abject conditions and are despised by many ethnic Rakhine, members of Myanmar's predominantly Buddhist majority.

"Vengeance and anarchy" could spread beyond Rakhine State and jeopardise the country's transition to democracy, Thein Sein warned in a hastily arranged televised address on Sunday.

Rohingya activists have long demanded recognition as an indigenous ethnic group with full citizenship by birthright, claiming a centuries-old lineage in Rakhine. But the government regards them as illegal immigrants from neighbouring Bangladesh and denies them citizenship.

In recent days, they have been described as "invaders" or "terrorists" by some Burmese using their newfound freedom of expression and easier access to the Internet to vent their anger on social networking sites and express anti-Rohingya sentiments that have simmered for decades.

The authorities have blamed Rohingya mobs for the violence. Witnesses from Maungdaw on Saturday described Rohingya attacking Buddhist homes. "It's just like a living hell. I wonder how long we will have to live like this?" said Mya Khin, a housewife.

Rohingya activists and residents accuse ethnic Rakhine of terrorising their communities. Witnesses in Sittwe said homes were torched on Sunday in at least four places.

By late Sunday, tensions appeared to be spreading. State-run MRTV announced curfews in three other Rakhine towns, including Thandwe, the gateway to Myanmar's tourist beaches, and Kyaukphyu, where China is building a giant port complex.

PLANELOADS OF SOLDIERS

Reuters saw residents of a mainly Rakhine village near Sittwe on Sunday set ablaze houses they said were Muslim-owned.

"We are burning Rohingya houses because they live near our village and they gather at night and try to attack us," said an unidentified ethnic Rakhine man.

Planeloads of soldiers arrived in Sittwe on Saturday but locals said the security forces were ineffectual.

"A Rohingya mob just set fire to some Rakhine houses just behind Infantry Battalion 357. The soldiers just watched, without doing anything," one local said, declining to be named.

An elderly Muslim man living with his family reported that Buddhist vigilantes armed with "swords and sticks" were roaming the streets on motorbikes.

"The security forces are helping them destroy Muslim houses," the man, a retired government official who also requested anonymity, said by telephone from his house near Sittwe airport.

A gang of Buddhists tried to burn his house down, but were dissuaded with help from a Buddhist neighbour, he said.

Reuters also saw Muslims setting alight houses and Buddhists preparing to defend their communities with sharpened bamboo stakes, machetes and sling-shots.

Among the dead on Friday, when the violence broke out, were an elderly man and a doctor, both Buddhists, who suffered multiple stab wounds.

The western region has been tense for more than a week after the gang rape and murder of a Buddhist woman blamed on Muslims and the reprisal killing by a Buddhist mob a week ago of 10 Muslims. State media said three men had gone on trial on Friday for the rape and murder.

The authorities said hundreds of Rohingya went on the rampage in Maungdaw, where around 500 buildings were said to have been destroyed, and a nighttime curfew was imposed.

Police and soldiers successfully restored "peace and stability" to Muangdaw and neighbouring Buthidaung district, the state-run New Light of Myanmar reported on Sunday. One woman died on Sunday after police confronted rioters at a Maungdaw market, it said without elaborating.

In its editorial, the usually staid newspaper made an impassioned plea for calm, warning that "democracy cannot flourish" where there is "anarchy, stagnation and lawlessness".

ABUSES, ONLINE ANGER

The Rohingya are descended from South Asians and speak a regional dialect of Bengali. Most are stateless, recognised as citizens by neither Myanmar nor Bangladesh.

The U.N. refugee agency estimates there are about 800,000 of them in three districts of Rakhine state bordering Bangladesh. They are subject to many forms of "persecution, discrimination and exploitation", says the United Nations, including forced labour, restrictions on travel and marriage and limited access to education.

Decades of systematic persecution by the Burmese authorities had made sectarian violence inevitable, said Elaine Pearson, deputy director of Human Rights Watch's Asia division.

"All those years of discrimination, abuses and neglect are bound to bubble up at some point, and that's what we are seeing now," she said.

Like their government, many Burmese refuse to recognise the term "Rohingya", referring to them as "Bengalis".

"The underlying perception of many Burmese is that Rohingya are illegal migrant terrorists," said Pearson.

Sectarian hatred in towns and villages in Rakhine State is mirrored online. "They should shoot at least one (to) make them shut up," read a comment on Facebook under a photo purporting to show rioting Muslims.

Twitter users are railing against "Rohingya terrorists," one under the hashtag "#OneThingWeAllHate".

These sentiments were echoed by nationalistic blogs such as Won Thar Nu, which ran gruesome photos of what it said were Buddhist victims. It accused the Rohingya of staging a "foreign invasion".

(Reporting by Reuters in Sittwe. Writing by Andrew R.C. Marshall. Editing by Jason Szep and Nick Macfie)

• A Permanent Economic Emergency