Georgia today said three Russian jets had entered its airspace and dropped bombs at two locations just south of a rebel enclave in the breakaway region of South Ossetia, reported guardian.
The announcement came as Russian prime minister Vladimir Putin, who is in China to attend the opening of the Olympic games, said that "aggressive" action by Georgia would incur a "response" from Russia.
A Georgian interior ministry spokesman, Shota Utiashvili, said two Russian military planes had attacked a police station near the town of Kareli, and a third dropped a bomb near the border town of Gori. Several civilians had been wounded in Kareli, he said.
The Georgian president, Mikheil Saakashvili, who has ordered the mobilisation of reservists, was quoted by Reuters as saying "the greater part" of South Ossetia had been liberated.
Russia's Interfax news agency said Georgian troops had entered the separatist South Ossetian capital of Tskhinvali, a claim denied by Georgia.
Interfax quoted its correspondent on the ground as saying heavy fighting was raging in the south of the town, but Utiashvili said the information was "not correct".
Rather, he said, Georgian forces were engaged in a battle with two convoys of trucks that had entered South Ossetia from Russia and were trying to reach the breakaway capital.
"We want to give time to the remaining civilians to leave Tskhinvali, " he said, adding that Georgian forces would enter the capital "if the need arises".
South Ossetia's leader, Eduard Kokoity, said his own troops were still in control of the capital.
"We are in full control of the capital city. Fighting is on the city limits, " he told Interfax.
Georgian television said Georgian troops had taken eight South Ossetian villages, including Sarabuk, a strategic vantage point on high ground.
Whatever the precise battle details, it was clear that a serious conflict had broken out only hours after President Saakashvili promised a unilateral Georgian ceasefire and offered South Ossetia the chance of broad autonomy within Georgia. The number of casualties was unclear but likely to be high.
All eyes were on Russia and its peacekeeping contingent in the area, which Georgia accuses of supporting the separatists. The Russian peacekeepers said the Georgians were targeting their positions and they had lost some men. In Moscow, Russia's security council was due to meet in an emergency session today.
The crisis in the Caucasus represents the first major test for Russia's new president, Dmitry Medvedev, but Putin's comments from China showed that he may be the man who still really calls the shots.
Georgian forces appear to have the upper hand and the element of surprise at the moment but they could soon find themselves fighting on two fronts, as another separatist region, the Black Sea enclave of Abkhazia, announced its troops were moving towards the Georgian border. Cossaks from Russia said they were also ready to go to the aid of the South Ossetians, many of whom have Russian citizenship.
In Tskhinvali, Kokoity was meeting Teymuraz Mamsurov, the leader of North Ossetia, which is just over the border in Russia. The North Ossetians have also promised help to their South Ossetian brethren.
Mamsurov said a convoy of lorries carrying humanitarian aid from his region was attacked by Georgian war planes during the night.