* Government says Malakal divided between army, rebels
* S. Sudan, Libya unrest offsets falling oil prices
* Washington "deeply concerned" by flare up in violence (Adds information minister)
By Carl Odera
JUBA, Feb 20 (Reuters) - The capital of South Sudan's main oil-producing region was divided between the army and rebels on Thursday, but the government said it remained committed to peace talks which have stalled this month.
Rebels allied to former vice president Riek Machar on Tuesday attacked Malakal, which lies on the edge of Upper Nile state's oil fields, triggering the fiercest clashes since a January ceasefire and adding to jitters in global oil markets.
International pressure is mounting on the warring factions to return to negotiations, although Western diplomats say in private that mutual recriminations over ceasefire violations raise questions about each side's commitment to talks.
"Malakal is not yet fully calm ... there are pockets of resistance within the town. It is split between the two sides," South Sudan's Information Minister Michael Makuei told Reuters.
Makuei was speaking in the Ethiopian capital, Addis Ababa, where East African states are trying to broker a second round of negotiations between the government and rebels, who have said they control all of Malakal.
"We are here to continue talking despite the aggressive and intolerable (ceasefire)violations," Makuei said. "Ultimately, whenever we are under attack, we will not fold our hands and say we are abiding by the cessation of hostilities."
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.
Global oil prices have been supported in part because of the conflict in South Sudan. The Juba government says it has already cut output by about a fifth to around 200,000 barrels per day, though analysts say the departure of foreign technical staff and the continued fighting mean the real figure may be lower.
Malakal lies about 140 km (90 miles) from an oil complex where a key crude processing facility is situated. Upper Nile is the only state pumping oil after production in neighbouring Bentiu was suspended earlier in the conflict.
Diplomats say the latest violence has cast doubts over the peace talks which have already been delayed by rebel demands for the release of four remaining political detainees and the withdrawal of Ugandan troops from the country.
The Juba government says it is frustrated that the international community has not been harder in its criticism of the rebels following the assault on Malakal.
"How long will these rebels continue to act as the spoilt child of the international community?" presidential spokesman Ateny Wek Ateny said.
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.
One aid worker said on Wednesday 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 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.