JUBA (AFP) - South Sudan's government said it was poised to recapture a key town from rebel forces, as peace talks being held in neighbouring Ethiopia appeared to be making slow progress.

The claim came amid renewed warnings of a fast-deteriorating humanitarian situation, with aid agency Doctors Without Borders (MSF) warning that people displaced by the conflict were at risk of epidemics.

The United Nations said thousands of people are fleeing the conflict in South Sudan each day, with whole villages looted and burned.

"It's a matter of hours that the SPLA (Sudan People's Liberation Army) will announce the capture of Bor," a government official told AFP, with reports that government reinforcements were being poured into the battle near the state capital, 200 kilometres north of Juba.

Rebel spokesman Moses Ruai Lat, however, dismissed the claim as lies: "They are making propaganda. In Jonglei state, we have no problem in the areas we control," he asserted.

Delegates from both sides held a second day of formal talks on Tuesday at a luxury hotel in Addis Ababa, although a brief morning session was adjourned with members of the government delegation heading back to Juba for "consultations" with President Salva Kiir.

"So far, there is progress because so far now there is no disagreement," rebel spokesman Hussein Mar Nyot told AFP, adding the negotiations would resume on Wednesday.

Chief government delegate Nhial Deng Nhial said there was "a hiccup that threatens to scuttle the negotiations" - the status of detainees loyal to Kiir's rival Riek Machar, a former vice president and nominal rebel leader - but that negotiations would continue.

The talks, brokered by the East African regional bloc IGAD, are aimed at ending more than three weeks of fighting in the world's newest nation. The conflict has left thousands dead, according to UN officials, while more than 200,000 people have been displaced or have fled the country.

The fighting began on Dec 15 as a clash between army units loyal to President Kiir and those loyal to Machar, and has escalated into war between government troops and a loose alliance of ethnic militia forces and mutinous army commanders.

A key sticking point has been rebel and international demands that the South Sudanese government release 11 officials close to Machar so they can participate in the talks, an issue yet to be resolved.