Intense clashes between junta troops and "People's Defence Force" fighters have ravaged the capital of Kayah state in recent days, with the military calling in air and artillery strikes to support its ground troops.

Rebel fighters have taken over churches and homes in state capital Loikaw and also attacked a prison, a police source told AFP, as they dig in during fighting the UN estimates has displaced almost 90,000 people.

On Wednesday, several PDF groups attacked the district administration office and killed 15 junta troops in an hour-long battle, a spokesperson for one of the groups, the Karenni Democratic Front, told AFP.

Fighters had used grenades and rockets in the attack, according to the spokesperson who asked to remain anonymous, adding their forces had suffered no casualties.

"We are choosing urban war as we don't have enough heavy weapons and guns for big battles against the Burmese military."

Local media also reported the attack and said houses had been destroyed by junta shelling.

AFP could not confirm reports of the incident, or the casualty figures, which analysts say both sides likely inflate or play down.

Junta spokesman Zaw Min Tun told AFP he could not confirm Wednesday's clash, but added that PDF fighters had targeted the military's Loikaw headquarters and several other military posts in the town in recent days.

He was unable to provide any information on junta casualties.

Kayah state has seen clashes and bloody reprisals as rebels draw the military into a stalemate.

Over Christmas the bodies of at least 35 people -- including two Save the Children NGO workers -- were found burnt in Kayah state, an atrocity blamed on junta troops.

The military's power-grab 11 months ago expelled civilian leader Aung San Suu Kyi's government and sparked mass protests and a subsequent crackdown that has killed more than 1,400 people according to a local monitoring group.