The victims, mostly men between the ages of 18 and 65 from the village of Racak, were not in uniform and correspondents say most were too elderly to be Albanian fighters - a woman and child are reported to be among the victims.

Witnesses from the village say the men were rounded up by Serbian policemen on Friday night, apparently for questioning but were later shot.

BBC World Affairs correspondent David Loyn: "This was an horrendous event"

The majority of the victims had been shot at close range with bullet wounds in the head or neck, and there are reports that some had been mutilated.

The Serb authorities later issued a statement suggesting the bodies are those of armed rebels killed in combat.

OSCE's Sandy Blythe: Verification monitors have counted 35 bodies

Without referring directly to the bodies discovered at Racak the statement says: "Terrorist groups, from their fortified positions attacked police by firing automatic weapons and mortars."

"In the exchange of fire tens of terrorists were killed, most of whom were in uniforms with the insignia of the KLA," it said.

The killings have sparked outrage from the European community. British Foreign Secretary Robin Cook condemned the "savage" murder, but urged both sides to resist a further escalation of violence.

Hillside massacre

Reports say some of the bodies have been mutilated

Reporters and international observers who were prevented from reaching the site on Friday, arrived on Saturday and saw the bodies lying in a ditch on a hillside.

The BBC's correspondent in Kosovo, Jacky Rowland, has been to Racak, about 25km (16 miles) south of the Kosovo capital Pristina where she saw the bodies of at least 30 men lying in a ditch above the village.

The BBC's Jacky Rowland in Racak: "Many elderly victims"

"There are distraught people wandering around, children crying who found relatives, brothers, fathers, uncle in the ditch," she said.

William Walker, who is leading the OSCE mission, said: "To see bodies like this without faces, blown away by what was obviously arms held close to the head, I think I need few more minutes to determine what I really should say."

Asked who had committed the crime, Walker said that the villagers told the OSCE officials "it was the Serbian police."

Renewed fighting

Our correspondent says that this latest execution could trigger renewed fighting between the two groups and endanger the already fragile truce brokered in October 1998.

In October, Yugoslavia agreed to allow a 2,000-strong monitoring force of the Organisation for Security and Cooperation in Europe into Kosovo to ensure it complied with UN demands.

This eleventh-hour compliance by Yugoslav President Slobodan Milosevic averted the immediate prospect of Nato airstrikes.

The OSCE has since scaled down its operation to 1,400 observers.

OSCE 'targeted'

On Friday, an unarmed British OSCE monitor or 'verifier' and his Serb interpreter were shot and wounded in a clash between Serb and ethnic Albanian forces in the west of the Serbian province of Pristina.

The OSCE said their personnel, who were travelling in clearly marked vehicles, had been "targeted."

The ethnic Albanian rebel movement began to mobilise after 1988, when President Milosevic withdrew Kosovo's autonomy.