At least 17 Lebanese soldiers have been killed in clashes with Sunni militants in the port city of Sidon.
Fighting broke out after supporters of a radical Sunni cleric opened fire on a checkpoint on Sunday.
Clashes continued overnight as security forces tried to surround the cleric's supporters, local media say.
Sectarian tensions in Lebanon have risen since the country's Shia movement Hezbollah backed Syria's government in the civil war there.
Witnesses said machine gun and rocket fire shook Sidon, 40km (28 miles) south of Beirut, causing panic among residents.
The army blamed the violence on supporters of hardline Sunni cleric Sheikh Ahmad al-Assir.
The incident is a further stark reminder of how the violence in Syria is destabilising life in neighbouring Lebanon where a delicate equilibrium has prevailed amongst rival religious and ethnic groups since its own civil war ended more than 20 years ago, says the BBC's Kevin Connolly in Beirut.
Sidon has been on edge since violence erupted last week between Sunni and Shia fighters who have taken different sides in the Syrian conflict.
Lebanese officials have since been trying to quell the unrest and had restored an uneasy calm before Sunday's violence.
Fresh clashes broke out on Sunday after police arrested a follower of Sheikh Ahmad al-Assir at a checkpoint.
Some reports suggest the man was carrying unlicensed firearms in his car. Mr Assir's Salafist followers claim the man was beaten up and then released.
Other supporters of the cleric then attacked security forces in retaliation and called on their supporters to take to the streets nationwide, the sources said.
More than 100 soldiers were wounded in the clashes.
"The army was attacked in cold blood in an attempt to light the fuse in Sidon," a military statement said.
Smoke could be seen billowing over parts of the city and shells were reported to have hit central Sidon late on Sunday evening.
People in the worst affected areas - Abra and Hilaliya - called on the authorities to move them to safer places.
Last month, Lebanon's parliament voted to postpone elections due in June because of security concerns over the conflict in Syria.