Bashir says Sudan to teach South final lesson by force KHARTOUM/JUBA (Reuters) - Sudan's President Omar Hassan al-Bashir all but declared war against his newly-independent neighbor on Thursday, vowing to teach South Sudan a "final lesson by force" after it occupied a disputed oil field. South Sudan accused Bashir of planning "genocide" and said it would fight to protect its people. Mounting violence since Sudan split into two countries last year has raised the prospect of two sovereign African states waging war against each other openly for the first time since Ethiopia fought newly-independent Eritrea in 1998-2000. Both are poor countries - South Sudan is one of the poorest in the world - and the dispute between them has already halted nearly all the oil production that underpins both economies. Appearing in medal-spangled military uniform at a large rally, Bashir danced side-to-side, waved his walking stick in the air and made blistering threats against the leadership of the South, which broke off last year after decades of civil war. "These people don't understand, and we will give them the final lesson by force," the burly military ruler told the rally in El-Obeid, capital of the North Kordofan state. We will not give them an inch of our country, and whoever extends his hand on Sudan, we will cut it off. China, a major investor in the oil industry in both countries, expressed "serious concern" about the increase of tensions and called on both sides to stop fighting, "maintain calm and exercise maximum restraint." South Sudan separated from the rest of Sudan with Bashir's blessing last July under the terms of a 2005 peace deal. But since then violence has steadily escalated, fuelled by territorial disputes, ethnic animosity and quarrels over oil. Last week, South Sudan seized Heglig, a disputed oilfield near the border between the two countries, claiming it as its rightful territory and saying it would only withdraw if the United Nations deployed a neutral force there. Sudan's armed forces spokesman Al-Sawarmi Khalid said by phone the army was now fighting "inside Heglig." South Sudan's army (SPLA) said it had repulsed a large attack on Heglig on Wednesday evening, stopping Sudan's forces about 28 km (18 miles) from the territory. "The SPLA maintained its position," spokesman Philip Aguer said. He also accused Sudan of launching another attack in the border regions of South Sudan's Western Bahr al-Ghazal state. In a sign of the conflict widening, the Justice and Equality Movement (JEM) - considered the most militarily potent of the rebel factions in Sudan's western Darfur region - claimed it had launched an assault on the al-Kharsana oil region near Heglig. "We are surrounding the Sudanese army in the main military base in al-Kharsana," JEM spokesman Gibreel Adam Bilal said by phone. Heglig is hundreds of km away from JEM's bases in Darfur but the group has fought in the Kordofan region in the past. The Sudanese army spokesman, Khalid, denied JEM's statement, saying there was no fighting in the al-Kharsana area. Limited access for independent journalists to Sudan's remote conflict zones makes it difficult to confirm the often contradictory claims issued by all sides. African states have often waged war on each other's territory, but it is extremely rare for them to talk openly of fighting against government forces of sovereign neighbors. Bashir's address to the rally on Thursday followed a fiery speech to party supporters on Wednesday, when he vowed to "liberate" South Sudan from its ruling party, which he repeatedly referred to as "insects," in a play on its Arabic name. South Sudan's Information Minister Barnaba Marial Benjamin responded on Thursday with outrage. Mr. President, we are no insects and if you are launching your genocide activities to the Republic of South Sudan to kill the people of South Sudan .... we can assure you we will protect the lives of our citizens. However, he also said South Sudan was willing to resume talks immediately on all outstanding issues. "The Republic of South Sudan is not in a state of war, nor is it interested in war with Sudan," he said. In both speeches, Bashir vowed to retake the Heglig oilfield, which he said was part of Sudan's Kordofan region. But he also said that alone would not end the conflict. "Heglig is not the end, but the beginning," he said in Thursday's speech. Global powers have voiced alarm at the escalation of violence and urged the two to stop fighting and return to talks. "China has worked hard to ameliorate the problems between the two Sudans, and we will continue to work with the international community at mediation efforts," Foreign Ministry spokesman Liu Weimin told a daily news briefing in Beijing. Some 2 million people died in Sudan's civil war, fought for all but a few years from 1955 to 2005 over disputes of ideology, ethnicity and religion. The countries remain at odds over issues including the border, how much the landlocked South should pay to transport its oil through Sudan and the division of national debt. Both countries accuse each other of waging proxy war through militia operating on each other's territory. Sudan's military - with an air force, tanks and artillery - is far better equipped than the former guerrilla fighters who make up the South Sudan army. In addition to the civil war in the south, Sudan has also fought long-simmering rebellions in Darfur and its South Kordofan and Blue Nile border states. Bashir is wanted by the International Criminal Court in the Hague for war crimes in connection with the Darfur conflict, charges he rejects as political. The south has tens of thousands of fighters under arms, with decades of experience in guerrilla conflict. Reporting by Ali Abdelatti, Khalid Abdelaziz, Alexander Dziadosz, Ulf Laessing and Ben Blanchard; Writing by Alexander Dziadosz; Editing by Peter Graff