South Sudan 'to withdraw troops' from Heglig oil field
South Sudan's President Salva Kiir has ordered the withdrawal of his troops from the Heglig oil field in Sudan.
But Sudan's leader Omar al-Bashir later said his forces had retaken Heglig town.
South Sudanese forces captured the area last week, accusing Khartoum of using it as a base to launch attacks.
UN chief Ban Ki-moon had described the occupation as illegal and also called on Sudan to stop bombing the South.
Mr Bashir on Friday told supporters at a victory rally in Khartoum: "We thank God that he made successful your sons; and the security forces and the police force and the defence forces - he has made them victorious on this Friday."
On state TV, his defence minister said Sudan's armed forces had entered Heglig 11:20 GMT.
South Sudan has so far made no public comments on Khartoum's claim.
The escalating fighting and rhetoric between the two sides over the past week has led to fears of all-out war.
South Sudan seceded last July following a 2005 peace deal that ended a two-decade civil war in which more than 1.5 million people died.
On Thursday, South Sudan issued a statement saying it was not interested in war with its northern neighbour and that it would only withdraw from Heglig if the UN deployed monitors there.
President Bashir had earlier threatened to bring down the government in Juba following the loss of Heglig, which provided more than half of Sudan's oil.
South Sudan ordered its withdrawal to create the environment for talks with Khartoum, Reuters news agency reports.
"An orderly withdrawal will commence immediately and shall be completed within three days," AFP news agency quotes a presidential statement as saying.
Mr Kiir said the South still believed that Heglig was a part of South Sudan and that its final status should be determined by international arbitration, Associated Press reported.
Heglig is internationally accepted to be part of Sudanese territory - although the precise border is yet to be demarcated.
The UK minister for Africa welcomed the news of the withdrawal and urged restraint on both sides.
"Sudan must also immediately cease all military action across the border, in particular bringing an end to aerial bombings of South Sudan's territory," Henry Bellingham said in a statement.
There have been intense diplomatic efforts to prevent a wider conflict - the latest involving the visit of US special envoy Princeton Lyman to Khartoum on Thursday.
The regional body Igad, which mediated the 2005 peace deal, expressed "grave concern about the escalating conflict" and said it would "extend all possible assistance to maintain peace and stability".
Uganda, a close ally of South Sudan, also indicated it might become involved if the fighting became a full-scale war.
"We will not sit by and do nothing," Ugandan military chief Gen Aronda Nyakairima was quoted by Uganda's private Daily Monitor newspaper as saying.
A Ugandan army spokesman told the BBC that diplomacy would be exhausted before any military action was ever considered.
During Sudan's civil conflict, Uganda accused the Khartoum government of supporting the Lord's Resistance Army, which was fighting in northern Uganda.
Uganda backed the South Sudanese rebels during the civil war and now has extensive economic interests in the newly independent country.
The LRA, led by Joseph Kony, who has been the target of a recent online campaign highlighting his activities, now roam the jungles of Central African Republic, South Sudan and the Democratic Republic of Congo.
"We will be involved having suffered a proxy war by Khartoum," Gen Nyakairima told the Daily Monitor.
"Our people in northern Uganda suffered and intelligence information also indicates that the LRA, who have an estimated 200 guns, are again in contact with Khartoum," he said.