As the Serbs stepped up their counterattack in the region, the Moslem- government-controlled radio said, "According to the latest information, the aggressor's army entered part of Velika Kladusa."
Responding to the Serb advance, Bosnian President Alija Izetbegovic demanded that NATO warplanes be called in to protect Bihac.
Bihac, south of Velika Kladusa, is a United Nations "safe area."
But Bosnian Prime Minister Haris Silajdzic, seeking to play down the Serb advance, told reporters, "There were two groups that infiltrated the suburbs of Velika Kladusa, and I think by this time both groups are neutralized."
Aid workers in the town disagreed. "Local UNHCR staffers in Velika Kladusa said anti-aircraft fire has been raking Velika Kladusa," said UNHCR spokesman Peter Kessler.
UN officials said they believed the Bosnian army Fifth Corps in Bihac had pulled back some of its forces from Velika Kladusa, creating a military vacuum in the area.
In Sarajevo, Izetbegovic called in the American ambassador to Bosnia, Victor Jackovich, and urged him to inform the U.S. government about the situation.
The United States said it had asked its allies in NATO to consider declaring a heavy-weapons exclusion zone around the town to protect Moslems from the fierce Serb assault.
Bosnian Serb reaction to the idea was dismissive. Bosnian Serb general Milan Gvero called the notion of protected zones a "farce," saying they allowed Moslem forces there to rearm in safety.
Adding to the confused picture around Bihac, the Bosnian Serb army said forces loyal to ousted Moslem leader Fikret Abdic were also in Velika Kladusa, while Abdic issued a statement in which he claimed that "the liberation of western Bosnia" had begun.
He also called on the Fifth Corps to surrende: "We are not offering you an amnesty, we are letting you go home."
UN spokesman Alun Roberts said he had received reports from Serb sources that soldiers loyal to Abdic had crossed from Serb-held areas of Croatia into the Bihac area Wednesday.
Abdic used the medieval castle in Velika Kladusa as a base during his year-long revolt against Bosnian government forces, which was crushed last August. His men then fled to Serb-held areas of Croatia, where they were armed by local Serbs.
The UN said Serb forces were also pressing toward Bihac.
The Serb counterattack has gathered momentum in the last few days, rolling back most of the gains achieved by the Fifth Corps two weeks ago.
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