(FILE PHOTO) LT Saw Kaw, a soldier of the Karen National Liberation Army (KNLA) in charge of the Cobra column, raises Karen's national flag after burning Myanmar's national flag at a Myanmar military base at Thingyan Nyi Naung village on the outskirts of Myawaddy, the Thailand-Myanmar border town. (REUTERS/Athit Perawongmetha/File Photo)
(FILE PHOTO) LT Saw Kaw, a soldier of the Karen National Liberation Army (KNLA) in charge of the Cobra column, raises Karen's national flag after burning Myanmar's national flag at a Myanmar military base at Thingyan Nyi Naung village on the outskirts of Myawaddy, the Thailand-Myanmar border town. (REUTERS/Athit Perawongmetha/File Photo)

A Myanmar rebel group has withdrawn its troops from a town along the Thai border following a counteroffensive by soldiers of the ruling junta from whom the rebels had this month wrested the key trading post, an official said on Wednesday.

The Karen National Union (KNU) made a "temporary retreat" from the town of Myawaddy, a spokesperson said, after the return of junta soldiers to the vital strategic area that is a conduit for annual foreign trade of more than US$1 billion.

"KNLA troops will ... destroy the junta troops and their back-up troops who marched to Myawaddy," Saw Taw Nee said, referring to the group's armed wing, the Karen National Liberation Army, one of Myanmar's oldest ethnic fighting forces.

He did not say what its next move would be.

Fighting had flared as recently as Saturday in Myawaddy, forcing 3,000 civilians to flee in a single day as rebels fought to flush out stranded Myanmar government troops holed up at a border bridge crossing.

On Wednesday, Thailand said the fighting had eased and it hoped to re-open its border crossing as trade had been hit. It said most civilians had returned and 650 remained.

"The situation has improved significantly," spokesperson Nikorndej Balankura told a briefing. "Nevertheless, we are closely monitoring the situation, which is highly uncertain and can change."

JUNTA RULE CHALLENGED

Myanmar's military faces its biggest challenge since first taking control of the country in 1962, caught up in low-intensity conflicts and grappling to stabilise an economy that has crumbled since a 2021 coup ended a decade of tentative democracy and reform.

The country is locked in a civil war between the military on one side and, on the other, a loose alliance of established ethnic minority armies and a resistance movement born out of the junta's bloody crackdown on anti-coup dissent.

The junta has lost control of a string of key frontier areas to rebel groups.

Photographs posted on some pro-junta social media groups showed a handful of soldiers raising the Myanmar flag at a military base the KNU had controlled just days before, and where the rebel group had raised its own banner.

Negotiations may be starting between rival troops on the Myanmar side, according to reports Thailand has received, Nikorndej, its spokesperson said, without elaborating.

He added that Thailand had proposed to Laos, the chair of the Association of Southeast Asian Nations, that it could host a meeting seeking to end the Myanmar crisis, attended also by the grouping's previous and future chairs, Indonesia and Malaysia.

The junta, which has mounted a counteroffensive to retake Myawaddy, entered the area with the help of a regional militia that had stood aside when the KNU laid siege to the town early in April, according to the KNU's spokesperson.

The junta and the militia group, the Karen National Army, did not immediately respond to telephone calls to seek comment. — Reuters