* Government says Malakal divided between army, rebels
* S. Sudan, Libya unrest offsets falling oil prices
* Washington "deeply concerned" by flare up in violence
By Carl Odera
JUBA, Feb 20 (Reuters) - The capital of South Sudan's main oil-producing region is divided between government troops and rebels, the president's spokesman said, after an escalation in fighting that has added to jitters in global oil markets.
Rebels loyal to former Vice President Riek Machar on Tuesday attacked Malakal, which lies on the fringes of Upper Nile state's oil fields, triggering the heaviest outburst of fighting since both sides signed a Jan. 23 ceasefire deal.
There is mounting international pressure on the warring factions to return to negotiations, although Western diplomats privately question the commitment of either side to end the conflict as each has blamed the other for ceasefire violations.
Global oil prices have been supported in part because of the conflict in South Sudan, which cut its crude output by about a fifth to around 200,000 barrels per day before the latest flare up in violence, as well as unrest in Libya.
"Malakal town is divided now between the government forces and the rebels" spokesman Ateny Wek Ateny told Reuters late on Wednesday.
This week's clashes in the dusty market town, which lies on the banks of the White Nile about 650 km (400 miles) north of the capital Juba, has raised concerns over the security of Upper Nile's oil fields and installations.
Malakal lies about 140 km (90 miles) from an oil complex where a key crude processing facility is situated and Upper Nile is the only state pumping oil after production in neighbouring Bentiu was suspended earlier in the conflict.
REBELS HOLD AIRPORT
One aid worker confirmed that rebels controlled areas around the U.N. compound in Malakal, where tens of thousands of civilians are seeking refuge, and the town's ramshackle airport. The rebels say the entire town is in their hands.
The latest violence has cast doubts over a planned second round of peace talks which have already been delayed by rebel demands for the release of four political detainees and the withdrawal of Ugandan troops from the country.
Thousands of people have been killed and more than 800,000 have fled their homes since fighting began two months ago, triggered by a power struggle between President Salva Kiir and Machar, his former deputy whom he sacked in July.
The United States said on Wednesday it was deeply concerned by the fighting in and around Malakal, which it called a blatant violation of the cessation of hostilities agreement.
"How long will these rebels continue to act as the spoilt child of the international community?" Ateny said at a news conference.
The government has accused the rebels of receiving support from outside, but has not publicly identified the source it believes has assisted the rebel forces. (Additional reporting by Lesley Wroughton in Washington and Aaron Maasho in Addis Ababa; Writing by Richard Lough; Editing by Jon Boyle)
Our Standards: The Thomson Reuters Trust Principles.