SYDNEY (Reuters) - Rioting, looting and gunshots erupted in the capital of Papua New Guinea on Wednesday (June 8) after police opened fire on a student demonstration, wounding more than a dozen people and killing as many as four, officials and residents said.

A groundswell of political unrest has surged in the island nation, just to Australia's north, in recent weeks amid calls for Prime Minister Peter O'Neill to resign over corruption allegations.

People in Port Moresby reported police firing on the public and using tear gas to disperse crowds after a protest at the University of PNG's Waigani campus turned violent.

"Now there is a very big clash with the public and with the police just outside the Port Moresby General Hospital," a hospital official told Reuters by telephone after a group of wounded students were taken there for treatment.

"There is also shooting going on, open gunfire."

Papua New Guinea, formerly administered by its near-neighbour Australia, struggles with endemic violence and poverty despite a wealth of mineral resources.

The US embassy in Port Moresby told its citizens to avoid areas of the city hit by violence. "The situation is still volatile and could escalate at any time," it said in a statement.

The Australian government, which routinely warns of "high levels of serious crime" and a "general atmosphere of lawlessness", updated its travel advice to warn of an "unconfirmed number of deaths and serious injuries" and that unrest had spread to other cities, including Lae in the north.

PEOPLE FLEEING

Hubert Namani, a lawyer and business leader, said public transport had been halted and people were fleeing the streets. "People are looting and rioting and sort of revolting, so the police are now caught trying to manage all of that," Namani told Reuters by phone from Port Moresby.

"All of the businesses are closing down, I've closed off my offices and sent everybody off for half the day."

Noel Anjo, one of the leaders of the student protest, said the violence began when students started a planned march from the campus towards the parliament building in the capital. Police set up a road block but the students refused to turn back, Anjo told Reuters.

"We were determined to go to parliament," he said. "Police did not like that idea and started assaulting the students, punching them, hitting them with the gun butts, before firing shots at them."

"The students were running for cover in all directions, but I saw some people badly wounded."

There was no immediate comment from police in Port Moresby.

Richard Sanaka, a doctor in the emergency department at Port Moresby General Hospital, said there were 20 wounded students at the hospital, five in critical condition.

A major aid agency, which declined to be identified because it only had preliminary information, said a clinic at the University of PNG's Waigani campus had reported at least 15 students were wounded, with four killed.

TEAR GAS, GUNFIRE

Video on social media appeared to show students fleeing amid clouds of tear gas and the sound of gunfire. Pictures showed several men with what appeared to be serious stomach, chest and leg wounds.

Australian Foreign Minister Julie Bishop called for calm and said she was seeking further information. "I know students have been shot but we are still trying to determine whether there have been deaths, how many injured,"Bishop told reporters.

Thousands of students at the University of PNG in Port Moresby have been protesting and boycotting classes for weeks amid growing political unrest.

O'Neill has resisted calls to resign since he was implicated in a major corruption scandal two years ago that included alleged government mismanagement and questionable international dealings.

Deputy Opposition Leader Sam Basil said PNG's parliament was adjourned on Wednesday until August because O'Neill was trying to avoid a no confidence push against his government. "We wanted the prime minister to step aside and also subject himself to the law, which he doesn't want," Basil told Reuters by telephone.

O'Neill's office did not respond immediately to requests for comment.

Human Rights Watch called on O'Neill "to immediately launch an impartial, thorough and transparent investigation" into the shootings and hold to account any officials involved.

Most of Papua New Guinea's seven million people live subsistence lives in isolated mountain villages and scattered tropical islands.

A boom in energy production, including Exxon Mobil's US$20 billion PNG LNG plant fuelled annual economic growth of close to 10 per cent a year for the past three years.

A spokesman for Newcrest Mining, which operates two remote gold mines in PNG, said trouble had been "brewing for a while" but its operations had not been affected. There was no comment available immediately from Exxon Mobil in PNG.