BOGOTA, Colombia -- Heavy fighting near the Venezuelan border killed at least 38 soldiers and leftist guerrillas, Colombia's military said Thursday. The army said retreating rebels took refuge in the neighboring South American country.

Elsewhere, guerrillas have occupied a pumping station at a reservoir in Colombia's southern Andes, cutting the water supply to more than 500,000 people, authorities said.

Seventeen army soldiers and 21 rebels from the Revolutionary Armed Forces of Colombia, or FARC, have been killed in the fighting, which erupted Wednesday near the eastern town of Tibu and was continuing Thursday.

It was the heaviest combat since peace talks with the FARC collapsed last month when the rebels stepped up their attacks on Colombia's civilian infrastructure.

Government fighter planes and attack helicopters were pursuing the rebels, who drew the army into the area after stealing and burning five vehicles Sunday belonging to Colombia's state oil company, said Gen. Martin Orlando Carreno.

In a statement, Carreno claimed the rebels fled into Venezuela, were lobbing mortars into Colombian territory and making sporadic incursions.

He said a group of about 150 guerrillas is believed to have a camp about a half mile inside Venezuela "limiting any kind of military offensive against the terrorists."

There was no immediate reaction from President Hugo Chavez' government in Venezuela, whose alleged sympathy for Colombian rebels -- something Chavez denies -- has caused friction between the countries. Carreno said Colombia's foreign ministry had notified Venezuelan authorities about the FARC's presence on its territory.

The area on the Colombian side of the border is a lawless cocaine-producing region rife with guerrillas and an illegal right-wing paramilitary group.

The move on the water reservoir late last week and reported only on Thursday was a sharp escalation in a month-old rebel campaign to paralyze the Colombian infrastructure.

Since peace talks ended Feb. 20, the FARC has also sabotaged at least 11 telecommunications systems and blown up 79 electrical transmission towers, leaving hundreds of thousands of people at least temporarily in the dark and without phone service.

The rebels have also tried to sabotage the water supply to the capital, Bogota, by bombing a reservoir, but failed to shut it down.

After the new attack Saturday on the pumping station at Rio Bobo reservoir, the flow of water was halted to the Narino state capital, Pasto, and the surrounding area.

The guerrillas ordered the engineers to stop working, said Gabriela Munoz, spokeswoman for the regional water department.

Since Wednesday, normal water service has been cut to more than 500,000 people, Munoz said in a telephone interview, although the department is using alternative sources to provide water from 5 a.m. to 8:30 a.m.

The infrastructure attacks, which are costing Colombia millions of dollars, will likely continue at least until the next president takes over in August, said Alfredo Rangel, Colombia's top military analyst and an adviser to the Defense Ministry. Presidential elections are scheduled for May 26.

"The FARC plans a large-scale economic sabotage over the next few months as a way to pressure the next government to agree to the renewal of peace talks that will favor the rebels," Rangel told Dow Jones Newswires.