He repeated an offer of "full autonomy" for the breakaway region. Russia could be the guarantor of that autonomy, he said, adding that Russia had indicated to him that it was trying to rein in the separatists.
"I offer you an immediate cease-fire and the immediate beginning of talks," Saakashvili said in a televised address.
Georgia's breakaway regions of South Ossetia and Abkhazia enjoy the political and financial backing of Russia, but Georgia has allied itself with the West and is pushing for membership of NATO.
The United States and Russia have agreed to work jointly to end fighting in Georgia's breakaway South Ossetia region, U.S. Assistant Secretary of State Dan Fried said in an interview Thursday.
Fried said he had just spoken with Deputy Foreign Minister Grigory Karasin by telephone, and "we both agreed to work together to get the fighting stopped in South Ossetia and encourage political dialogue."
Loud explosions and automatic gunfire could be heard from villages around the breakaway capital Tskhinvali, 100 kilometers north of the Georgian capital Tbilisi.
A security source said Georgian special police units and the fifth mechanized army brigade had been moved to the town of Gori, on the doorstep of South Ossetia.
A military field hospital was being set up on the main road, and buses filled with Georgian soldiers stood in convoy.
Russia said Georgia was readying for war, a charge Tbilisi denied.
"We urge the Georgian leadership to show common sense and stop irresponsible military activities in South Ossetia," Deputy Foreign Minister Grigory Karasin told Interfax.
"We view the situation as extremely dangerous. It has indeed reached a stage of unprecedented drama," Karasin said, Itar-Tass reported.
Fifteen years since South Ossetia and the Black Sea region of Abkhazia fought to break away from Georgian rule, soaring tensions and increasingly intense clashes have raised the specter of full-blown conflict.
The Georgian Interior Ministry said separatists were trying to attack the Tbilisi-controlled village of Avnevi in South Ossetia and had destroyed a Georgian armored personnel carrier. Three soldiers were wounded.
"[The separatists] are trying to attack Avnevi. The fighting is ongoing," ministry spokesman Shota Utiashvili said.
The official separatist web site, http://cominf.org, said Georgians were shelling the village of Khetagurovo from Avnevi. "Guns from APCs, mortars and machine guns are being used," the site said.
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