Macedonian Interior Minister Ljube Boskoski has warned of more casualties as the standoff between police and hostage-takers continues.

One man has already been killed as ethnic Albanian gunmen hold five people hostage in the north-western village of Zerovjane.

Interior Minister Ljube Boskovski, right, said no decision had been made to attack the village

Heavily-armed security forces have surrounded the village where seven people were captured by former members of the officially disbanded National Liberation Army (NLA), an ethnic-Albanian guerrilla group involved in an insurrection last year.

The gunmen are demanding the release of two former fellow militants arrested on Thursday for the murder of two policemen.

Two hostages were freed overnight. The remaining captives include a senior official from Macedonia's state

Earlier police shot a man at a checkpoint outside the village, but it remains unclear what connection, if any, he had to the kidnapping. Another man was injured in the shooting.

Police are talking to the kidnappers through the International Committee of the Red Cross.

Kidnappers' threats

But Mr Boskovski said: "If the negotiations fail, there will have to be a police action, which is high-risk and could result in a number of casualties."

He also said that, despite heavy police presence, no decision had been made to launch an attack on the village.

The kidnappers had reportedly said they would kill their prisoners unless their demands were met by a 1000 local time (0800 GMT) on Friday, a senior police source in Tetovo said.

But the deadline passed without any indication that the hostages had been executed.

One of the gunmen told the BBC they had no plans to kill the hostages, as previous reports had suggested.

They also accuse the government of breaching an agreement, reached last year, that gave former guerrilla fighters an amnesty for taking part in the war.

The standoff comes during an increasingly tense build-up to parliamentary elections in the country, in two weeks' time.

Nato anger

Nato Secretary General George Robertson called for the hostages to be released immediately.

He described the hostage-taking as "deplorable and provocative", and called for restraint on all sides to ensure a smooth run up to the elections.

The past two weeks have seen the government step up security measures in the former conflict zones.

Last Monday, two volunteer policemen were shot dead, allegedly by ethnic Albanian gunmen.

Senior ministers are now threatening to arrest the former commander of the NLA, Ali Ahmeti, now a leading candidate in the upcoming polls, although Nato has warned against such action.