(CNN) -- South Sudan announced Friday it was withdrawing its troops from a contested oil-rich area it seized last week in a move that escalated tensions and fears of a return to war with Sudan.
"An orderly withdrawal will commence immediately and shall be completed within three days," said Barnaba Marial Benjamin, South Sudan's information minister, adding that his country still claims Panthou, or Heglig as it is known in Sudan.
However, Sudan's government said its forces drove out the invaders from the south.
"The armed forces have liberated Heglig town from South Sudanese troops and mercenaries," Defense MInister Abdel Raheem Muhammad Hussein declared Friday on state-run television.
In New York, Sudan's U.N. ambassador said the South Sudan troops were "forced to withdraw."
"They were chased out," Ambassador Daffa-Alla Elhag Ali Osman told reporters. "If you remember a few days back, the president of the South and a number of their officials started to talk about conditional withdrawal, but yesterday they are being cornered, we fought against them and we chased them out. It is not a withdrawal. We chased them out."
The disputed region is on the border between the two countries created last year when South Sudan split from Sudan.
Benjamin said South Sudan sent troops into the area on April 10 because Sudan was using it to launch ground and aerial attacks across the border.
"The Republic of South Sudan calls on Sudan to immediately desist from air bombardments and ground incursions into the territory of the Republic of South Sudan," he told reporters in Juba, the South Sudan capital.
Sudan claims Heglig's oil fields, which account for about half of the nation's oil production, and Sudanese President Omar al-Bashir had vowed to "never give up" the disputed region.
"And we have said it before, whoever extends his hand toward Sudan, we will cut it off," Bashir said Thursday. "If they do not understand, we will make them get it by force."
Sudanese warplanes have struck targets in South Sudan's border state of Unity during the past week, including an attack on Mayom town, where the United Nations said eight civilians were killed and 22 injured. One bomb hit a U.N. camp, but no one was hurt.
Sudan's military spokesman, Philip Aguer, said Friday that Sudan had bombed a central processing facility in the Heglig oil fields.
"Khartoum bombed the CPF yesterday at 5:30 and that facility is still burning," he said.
The facility is key to pumping oil out of the fields, which accounted for close to half of Sudan's entire production of about 115,000 barrels of oil per day before wells were shut down due to the conflict.
South Sudan's seizure of the region and the resulting border clashes and threats raised fear in the international community of renewed full-scale war.
The two sides fought a civil war for two decades that led to about 2 million deaths.
"The last thing the people of these two countries need is another war -- a war that could claim countless lives, destroy hope and ruin the prospects of peace and stability and prosperity of all Sudanese people," U.N. Secretary-General Ban Ki-moon said.
South Sudan split from the government in the north in July, officially breaking Africa's largest nation into two as the result of a referendum last year overwhelmingly approved by voters.
The referendum was part of a 2005 peace deal that ended the civil war that pitted a government dominated by Arab Muslims in the north against black Christians and animists in the south.
Tensions run deep between the two nations, which have outstanding issues after their divorce last year.
When they separated, South Sudan acquired three quarters of Sudan's oil reserves. The two countries have been locked in negotiations about how much the landlocked South Sudan should pay to use a pipeline and processing facilities in the north.
Other outstanding issues remain since secession, including the status of citizens of both countries who find themselves living on either side of the world's newest international border. The fate of disputed border areas are also a point of contention.
Britain's ambassador to South Sudan, Alastair McPhail, urged both countries to return to the negotiating table.
"We hope the withdrawal will be orderly and that both sides will refrain from further military action," he told reporters in Juba.
South Sudan's Benjamin also called for "a more robust international engagement" in the negotiating process.
In New York, Osman said the Khartoum government was ready for "negotiations, peaceful settlements, provided that they come to their senses, sense of logic and sit down to negotiate without putting any conditions."
Osman also accused the leaders of South Sudan of continuing to act like guerrilla fighters instead of a new government.
"It is high time for the Security Council and the international community to send also a strong message for the government of the South to disassociate itself from the rebel factions and to stop destabilizing" Sudan and the region, he said.
China, which has invested heavily in Sudan's oil industry, has argued for calm and respect for each other's sovereignty, while Princeton Lyman, the U.S. special envoy for Sudan and South Sudan, visited both countries recently to meet government officials.
There is "an enormous amount of very emotional, very powerful rhetoric coming from here in Khartoum raising the stakes in many ways and that's worrisome in and of itself," Lyman said Thursday.
But he said that based on the discussions he'd had with both sides, it was clear they did not want to return to war.
As long-simmering tensions soar, rights group are warning of deteriorating humanitarian conditions.
"The deteriorating situation right now is making the overall humanitarian issues very challenging," said Alex Neve, secretary-general of Amnesty International Canada.
Neve, who is in Juba, said supply lines at refugee camps have been cut off and failure to get key supplies before the rains will lead to a humanitarian crisis.
CNN's Ben Brumfield, Richard Roth and Tom Cohen contributed to this report.