The president made the announcement hours after rebels attacked Klay, just 35km (22 miles) north of the city, although he made no reference to the fighting.

Forces loyal to President Taylor have been fighting rebel factions in the north of the country since 1999.

Earlier this week, Defence Minister Daniel Chea said the government army was fighting an unfair war because of an international ban on selling weapons to the Liberian Government.

Last week, the rebels briefly captured the village of Sawmill just 80km from Monrovia, causing thousands of refugees to flee.

Rebels poised

"The arms embargo and the government's inability to fully cater to the economic and social well-being of its citizens warrant the declaration of a state of emergency," Mr Taylor said on state radio and television.

Thousands of refugees have fled the latest fighting

"The state of emergency will be lifted only circumstances which warranted this action are removed," he said.

Rebel spokeman Charles Bennie told the BBC's Focus on Africa that they would soon be in control of Klay junction, on the main road to Monrovia.

Information Minister Reginald Goodridge confirmed to the same programme that they were in the area.

Rebels had earlier told Reuters news agency that thousands of rebel fighters were poised to strike Monrovia and could take the city in 72 hours.

They said they wanted the president to resign and leave.

Liberia has repeatedly accused neighbouring Guinea of backing the rebels, spearheaded by the Liberians United for Reconciliation and Democracy (Lurd).

The defence minister has said that if the arms embargo was lifted, the army could defeat the rebels within a month.

The international ban was imposed because Liberia was accused of selling diamonds on behalf of the rebel movement in neighbouring Sierra Leone.

The government said in January that the sanctions should be lifted because the war in Sierra Leone has officially been declared over.

Fractured forces

Lurd is thought to be led by former chief of staff Charles Julu, who served in the former regime of president Samuel Doe, assassinated in 1990 after Mr Taylor launched an insurgency.

Taylor won elections but now faces security problems

The rebels gather many of the forces that fought Mr Taylor during the country's brutal civil war from 1989 to 1997.

Rebels claim to be active in northern Liberia, and the government has sent military reinforcements there to deal with them.

But the situation is also confused by a variety of pro-Liberian government militias in the region, some of which are reported to have clashed among themselves.

Our West Africa correspondent says the conflict in Liberia is complex and fragmented, with no clear rebel front-line outside Monrovia.

He says the rebels - if they exist as a coherent force at all - are a mixture of dissidents opposed to President Taylor and elements who would best be described as bandits.