Sudan says its largest oil field is now controlled by South Sudan's army.
A Sudanese military spokesman told the BBC its forces had been defeated outside Heglig, and retreated north.
South Sudan said its forces had advanced to Heglig, but stopped short of saying its forces actually controlled the oil fields.
Clashes between the two sides started two weeks ago, and are among the worst since South Sudan gained independence last July after a long civil war.
South Sudan ended up with most of the oil fields, although it has to export the oil using pipelines through ports in Khartoum's territory.
Both sides blame the other for starting the latest fighting along the undemarcated and disputed frontier in the oil-producing Heglig area.
South Sudan's military spokesman, Philip Aguer, told the BBC the army was responding to air and ground attacks by the Sudanese armed forces.
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