Toledo is accused of selling out

The assault was led by a retired army major, Antauro Humala, who is described as an ultra-nationalist.

In a radio interview he accused President Alejandro Toledo of selling out to foreign investors.

Police said five police and two others were injured in the shoot-out in the town of Andahuaylas.

Mr Humala called for an end to inflows of capital from neighbouring Chile, a traditional Peruvian rival.

Local support

"We are not going to leave the police station until Toledo steps down, but I also am willing to negotiate," he said.

He added that his brother, Ollanta Humala - who led a military revolt against former president Alberto Fujimori in 2000 - was on his way to join the uprising.

Local people were reported to have joined demonstrations in support of the takeover.

Mr Toledo's cabinet chief Carlos Ferrero said: "We will not allow a group of subversives to try to use violent acts to shatter Peru's democracy and its laws."

"We are going to avoid violent acts but we are obligated to restore public order and arrest subversives. And that is what we are going to do."