Civil unrest in the troubled country, which subsided last week, flared again yesterday with the death of at least one government soldier and the wounding of five others.
The violence came a few days after a crucial meeting of the ruling Fretilin party, in which Prime Minister Mari Alkatiri outmanoeuvred an attempt to unseat him, despite his unpopularity among the East Timorese.
In Canberra, Cabinet's national security committee ordered the Darwin-based taskforce - the biggest assembled since the 1999 East Timor crisis - to maintain its high state of readiness.
Regional security jitters have fanned out across the Tasman, with an announcement by New Zealand it was putting a platoon of soldiers on standby for possible deployment to East Timor.
Foreign Minister Alexander Downer told Parliament yesterday Canberra remained concerned about the security situation in East Timor after a sudden escalation in violence following the end of the Fretilin national conference last Friday.
The sound of automatic weapons echoed across the dilapidated capital Dili yesterday as government security forces and armed rebel soldiers exchanged gunfire. At least two government soldiers were wounded in one exchange.
Many embassies have evacuated non-essential staff and more than 20,000 people have fled the capital since the violence erupted on April 27 and 28.
A spokesman for Mr Downer said last night SBS cameraman David O'Shea was safe and "in an embassy car" after fears he had been caught up in a gunbattle between rebel soldiers and government troops outside Dili.
He had been interviewing a renegade Australian-trained officer - Major Alfredo Reinaldo, the commander of East Timor's military police.
A third of the East Timorese army - 595 soldiers - were dismissed in March after protesting about pay and conditions and promotion based on ethnicity.
"Reports we are getting today are that parts of Dili and other parts of the country are descending into violence," Mr Downer told Parliament.
"There are reports of injuries and property damage."
He said the violence showed the need for an independent government commission investigating the grievances of the dismissed soldiers to finish its work as quickly as possible.
"Rebel military and security personnel must cease destabilising the situation and work with the Government to resolve their differences," he said.
Mr Downer said he had held talks with his East Timorese counterpart, Jose Ramos Horta, about the worsening violence.
He said the Government stood ready to offer military assistance if requested by the East Timor Government or the UN.
RAAF aircraft, three navy amphibious transport ships and a battalion-size combat force are on standby in Darwin to evacuate the estimated 800 Australians living in East Timor or to undertake peace-enforcement operations.
As a young nation, East Timor was still coming to terms with the responsibilities of democracy and government, Mr Downer said.
