Independence protesters burned shops and cars in the Tibetan capital Lhasa on Friday and Chinese police were 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 buildup to the Beijing Olympic Games.

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 by telephone. "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 early on Friday and confronted 1,000 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.

RESENTMENT

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 in a statement.

Chinese authorities were uncompromising. "The government of Tibet Autonomous Region said Friday there had been enough evidence to prove that the recent sabotage in Lhasa was 'organized, 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 on Friday.

Xinhua said in the early hours of Saturday public order had "basically returned to normal", but added some people had been taken to hospital with injuries. It did not say who they were.

"The problem is that a lot of injured Tibetans may end up in prison, where the medical care is really poor," said John Ackerly, president of the International Campaign for Tibet, in Washington.

A spokesman for the Dalai Lama, contacted in the Indian town of Dharamsala, a centre for Tibetan exiles, said of the Chinese allegation against "the Dalai clique": "This is absolutely baseless and his holiness has made his stand very clear."

The Dalai Lama has in recent years called for limited autonomy for Tibet, but some Tibetans demand full independence.

The protests present hard choices for President Hu Jintao, who was Communist Party boss in Tibet in 1989 when China imposed martial law to quell anti-Chinese protests.

U.S. URGES RESTRAINT

U.S. 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 U.S. spokesman told reporters.

U.N. High Commissioner for Human Rights Louise Arbour urged China "to allow demonstrators to exercise their right to freedom of expression and assembly, to refrain from any excessive use of force while maintaining order and to ensure that those arrested are not ill-treated".

Police in New York said they arrested six pro-Tibet protesters who tried to enter U.N. headquarters.

The devoutly Buddhist people of Tibet's vast plateau have won international sympathy, but little international recognition of claims to sovereignty, since Chinese troops invaded in 1950.

Nine years later came the failed uprising and the flight of the Dalai Lama and thousands of his supporters into exile.

A Han (majority) Chinese resident of Lhasa said the protests were being directed at the city's Han Chinese population, which has mushroomed in recent years with China's economic boom. "The Han Chinese are really scared," he said.

Many Han Chinese immigrants are small shopkeepers and traders. Xinhua said some shops were set on fire on Friday.

"At one o'clock, Friday afternoon Lhasa time, people were ordered to stay in their offices, stay in their schools, and if they were at home, to stay at home," said Ben Carrdus of the International Campaign for Tibet.

The demonstrations in Lhasa spilled over into at least one other ethnic Tibetan area of China.

Hundreds of monks of Labrang monastery in the northwestern province of Gansu led a march through the town of Xiahe, the Free Tibet Campaign said, citing sources in Dharamsala, home to Tibet's government-in-exile.

About a dozen Tibetan exiles in India were arrested when they tried to storm the Chinese embassy in New Delhi on Friday.