* Congo army seizes key rebel strongholds
* Victories raise chance army could defeat rebels
* M23 spokesman says troops have retreated, will fight back
* Rwanda says two of its citizens killed by Congolese army
By Kenny Katombe
RUTSHURU, Democratic Republic of Congo, Oct 28 (Reuters) - Rebels in eastern Democratic Republic of Congo abandoned a key military base on Monday but vowed to fight on despite four days of a successful army offensive that has stoked tensions with neighbouring Rwanda.
Rwanda, accused by U.N. experts of backing the M23 rebels, said two of its citizens had been killed by Congolese army fire since Friday, when fighting erupted after two months of relative calm.
Kigali, which denies any support for the M23, had warned it would not tolerate Congolese shells landing in its territory.
A string of victories by government forces backed by a new U.N. intervention brigade has boosted belief that Congo's army could finally quell a 20-month insurgency which has displaced tens of thousands of people in the mineral-rich area.
The U.N. Security Council held closed-door consultations in New York on Monday at France's request. The 15-nation body issued a statement that "condemned in the strongest terms the attacks by M23 rebel group" that claimed the life of a Tanzanian peacekeeper on Sunday.
"They (the council) also expressed their condolences for the loss of civilian lives in the Democratic Republic of the Congo, and in Rwanda following shells landing on its territory," it said.
Kigali's U.N. ambassador, Eugene Richard Gasana, told the council that "no military intervention can sustainably solve the conflict in eastern DRC (Congo)."
"But Rwanda will not tolerate for much longer continued violations of its territorial sovereignty that put its people directly in harm's way," Gasana said, according to the written text of his remarks provided to Reuters by the Rwandan mission.
French Ambassador Gerard Araud told reporters that U.N. special envoy to Congo Martin Kobler said in a video briefing for the council that the Congolese army was in the process of vanquishing the M23 rebels and that its attention would need to turn to other rebel groups once the M23 threat was removed.
The United States has warned that the renewed hostilities in eastern Congo risked dragging neighbouring countries into the conflict.
Fighting flared after peace talks in neighbouring Uganda broke down when M23 demanded a full amnesty for its leaders. President Joseph Kabila last week ruled out a blanket pardon. Rwanda's Gasana called for a resumption of the Kampala talks.
Lawrence Kanyuka, deputy spokesman for M23, told Reuters by telephone that the rebels withdrew overnight from Rumangabo, a former Congolese army base they seized last year.
The latest setback came after rebels were forced to abandon their former strongholds in Kibumba, Kiwanja and Rutshuru over the weekend. Rutshuru became the main rebel base after a string of victories over the Congolese army last year.
"This is not the first time we have withdrawn. It's not the end of the line for us," Kanyuka said, denying reports that some M23 leaders had fled to Rwanda. "We're still in Congo. We're Congolese. We're fighting for our land and our survival."
In Rutshuru, jubilant crowds welcomed Congolese soldiers and U.N. peacekeepers who began patrolling the town on Monday, a Reuters reporter said. The Congolese army has occupied a building that had served as the rebel headquarters.
A Congo army spokesman said government forces were awaiting orders to attack rebels who had fled towards Bunagana, a town near the Ugandan and Rwandan borders.
Rwanda said on Friday it could respond militarily if more Congolese shells landed on its territory - making army operations near the border extremely sensitive.
Congolese military sources say M23 has been weakened by desertions, with at least 40 rebels taking advantage of a corridor created by the government to allow then to flee over the weekend.
Rwanda has handed over 15 wounded rebel fighters who fled across the border to the International Committee of the Red Cross, the Rwandan Defence Ministry said.
M23 began in early 2012 as a mutiny by soldiers demanding the government implement the terms of a 2009 peace deal signed with a previous Rwanda-backed rebel group, many of whose members had been integrated into the army.
A report on Monday by Enough Project, a U.S. human rights campaign group, said any attempt at peace in Congo must tackle not just the Tutsi-led M23 but also its rival, the Hutu-dominated FDLR.
Rwanda has accused the United Nations of ignoring the threat from the FDLR, led by some of those responsible for Rwanda's 1994 genocide in which Hutus killed some 800,000 Tutsis and moderate Hutus.
In another area of eastern Congo, about 10,000 Congolese refugees have fled into Uganda to escape fighting between a new rebel faction called M18 and local militias, Red Cross and military officials said. (Additional reporting by Louis; Editing by Sandra Maler Charbonneau in New York; writing by Bate Felix; Editing by Daniel Flynn and Robin Pomeroy)