According to a Palestinian Red crescent volunteer from inside the camp, "10 bodies were found and more than 30 people were wounded, mainly civilians."
The volunteer, who requested anonymity, told Deutsche Presse-Agentur dpa that a number of dead Fatah al-Islam militants were seen on the streets inside the camp especially near the northern entrance.
"There were heavy casualties among the militants. I saw a minimum of three bodies in the street," he added without elaborating.
Hospital sources in Tripoli said: "Two soldiers were killed and more than 20 others were wounded."
"This is the heaviest we've witnessed in days, and it is alarming," a witness outside Tripoli said.
"Dozens of shells are falling every minute," he said of the latest round of fighting which started on May 20 and has continued sporadically between the army and militants from the Fatah al- Islam group.
Lebanese army sources told dpa that Lebanese special forces around the camp had been put on the alert. "This might be the beginning of the storming of the camp," the source said, adding: "Nothing is definite yet, but from what we see the heavy shelling indicates that a land assault will be carried out."
An army spokesman told dpa that the al-Qaeda inspired Fatah al-Islam opened fire at around 7.00 am (0400 GMT) on army positions outside the camp and on the road linking it to Tripoli.
"The army responded with precision fire or I can say, decisive fire from tanks and mortars in a legitimate case of defence and in an attempt to spare civilians," he said.
The army spokesman also said Fatah al-Islam had retreated from buildings targeted by the army and were on Friday hiding in buildings housing civilians. "They are now taking civilians as their human shield," he said.
A Lebanese security source said a shelter where the commander of Fatah al-Islam was hiding had been hit by several tank shells, while unconfirmed reports from Nahr al-Bared said Shaker al Abssi "was killed or injured in the shelling of the shelter."
Information minister Ghazi al Aridi on Friday said the army "has clear orders to use the right means to end this terrorist movement" but to "avoid as much as they can the civilians still inside the camp."
Some 34,000 of the Nahr al-Bared's 40,000 residents have fled since the fighting in which 78 people have been killed, including 32 soldiers. The United Nations Relief and Works Agency on Friday estimated that just 5,000 people were still living in the camp, while the rest had fled to Bedawi camp, another of the country's Palestinian refugee camps.
A spokesman for the Palestinian mainstream Fatah movement in Lebanon, Sultan abu al-Anian, told dpa: "What the Lebanese army is doing is legitimate and legal ... We have assurances from the Lebanese government that civilians would be spared."
The government of Premier Fouad Seniora has been pushing for a peaceful end to the standoff, insisting that Fatah al-Islam hand over fighters to stand trial for attacking its armed forces during the bloodiest internal fighting since the 1975-1990 civil war.
But the group has refused to hand over any of its fighters.
Sheikh Mohammed al-Hajj, a member of a delegation of clerics attempting to mediate a solution, said on Thursday that "the situation is still complicated and requires more discussions."
After meeting with Seniora in Beirut on Friday, Abbas Zikki, the representative in Lebanon of the Palestine Liberation Organisation (PLO) said he had been told "concrete measures will be taken to put an end to the hostage-taking of the camp."
Zikki said he had also pleaded for the army to "do everything in its power to spare civilians."
Lebanese observers fear the standoff between the army and Fatah al-Islam will cause the deterioration of an already fragile situation in Lebanon. dpa wh pb