The strategic town of Faya-Largeau in northern Chad has fallen to the forces of former president Goukouni Oueddei and Libyan supporters, the Chadian Embassy in Paris said early today.

Reuter quoted Chadian Charge d'Affaires Ahmat Allam-mi as saying, "The Chadian national armed forces have been forced to evacuate in good order the city of Faya-Largeau, in the night of Friday to Saturday, following a massive intervention of foreign Libyan forces."

Rebels trying to oust President Hissene Habre had earlier encircled the town, whose capture could open the way for an advance on the capital of Ndjamena.

Before news of the fall of the town reached Paris, Allam-Mi said that the rebels had cut military supply lines to the capital but that the Army was still fighting.

France, the former colonial power in Chad, says it supports Habre and will not remain indifferent to foreign involvement in the 17-year-long conflict. But Foreign Minister Claude Cheysson appeared to rule out direct intervention, and French officials said there was no proof that Libya was fighting with the rebels.

The Libyan People's Bureau in Paris denied that Tripoli's forces were taking part but said Libya would not tolerate foreign interference in Chad. A spokesman said the warning was addressed to Sudan and the United States rather than France.