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INDEPENDENCE protesters have burned shops and cars in the Tibetan capital Lhasa, and Chinese police are reported to have shot dead at least two people, in the fiercest unrest in the region for two decades.

China accused followers of the Dalai Lama of "masterminding" the uprising, which shatters its carefully-cultivated image of national harmony in the build-up to the Beijing Olympic Games.

But a spokesman for the exiled Tibetan spiritual leader called the allegation "absolutely baseless".

The Dalai Lama appealed to China to stop using force and begin dialogue. Similar protests in the past have been crushed with gunfire and mass arrests.

Peaceful marches by Buddhist monks in recent days have given way to angry crowds confronting riot police.

"Now it`s very chaotic outside," an ethnic Tibetan resident said. "People have been burning cars and motorbikes and buses. There is smoke everywhere and they have been throwing rocks and breaking windows. We`re scared."

Radio Free Asia, quoting witnesses, said Chinese police fired on protesters, killing at least two. A source told Reuters two Tibetans were shot dead near the Ramoche Monastery near Lhasa. The deaths could not be verified.

"We are waiting to see what will happen tomorrow," said a Tibetan woman in Lhasa. "It could get much worse."

Up to 400 protesters gathered at a market near the Jokhang temple and confronted 1000 police, according to a witness cited by the Free Tibet Campaign in London.

A Tibetan resident said some protesters shouted for independence from China. "It`s no longer just the monks. Now they have been joined by lots of residents," the man said.

China`s role in Tibet has become a focus for its critics in the run-up to the Olympics, with marches held worldwide this week to mark the 49th anniversary of a failed uprising against Beijing`s rule that led to the Dalai Lama fleeing to India.

Those marches apparently galvanised Buddhist monks to take to Lhasa`s streets, defying a heavy police presence and reported lockdowns at several monasteries.

"I ... appeal to the Chinese leadership to stop using force and address the long-simmering resentment of the Tibetan people through dialogue with the Tibetan people," the Dalai Lama said.

Chinese authorities were uncompromising. "The government of Tibet Autonomous Region said ... there had been enough evidence to prove that the recent sabotage in Lhasa was `organised, premeditated and masterminded` by the Dalai clique," Xinhua news agency reported.

"The violence, involving beating, smashing, looting and burning, has disrupted the public order, jeopardised people`s lives and property, an official with the government said."

But China was "fully capable of maintaining social stability" in Tibet, the official said. Most of the Chinese media reported nothing about the unrest.

US ambassador to Beijing Clark Randt told senior Chinese officials of Washington`s concern.

"He took the opportunity, because of what was going on in Lhasa, to urge restraint on the part of the Chinese officials and Chinese security forces," a US spokesman said.

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