Thai troops clashed with protesters for a third day in Bangkok yesterday, as streets in the centre of the city became battlegrounds and authorities struggled to contain Red Shirt demonstrators demanding the prime minister's resignation.

Explosions and street fighting have killed 22 people and wounded nearly 160 since the government attempted on Thursday to seal off the one-square-mile zone the Red Shirts have occupied in one of the capital's most upmarket areas.

The spiralling violence, which has shifted from street to street over three days, has raised concerns that Thailand – a long-time tourism magnet that promotes its easygoing culture as the 'Land of Smiles' – was teetering toward instability because of the two-month-long political crisis.

The army says its troops are not shooting to kill, but protesters during a lull in clashes yesterday crawled along pavements to slowly drag away corpses of three people near the city's Victory Monument traffic circle.

They said army snipers had shot all three in the head.

On Friday, circling troops used tear gas, rubber bullets and live rounds on demonstrators and the protesters in turn set fire to tyres and a police bus.

Sporadic clashes resumed in several parts of the city yesterday, and explosions once again echoed through streets emptied of shoppers and tourists, as plumes of black smoke rose amid skyscrapers and hotels.

In a message from New York, UN Secretary-General Ban Ki-moon appealed to both sides to "do all within their power to avoid further violence and loss of life".

But with negotiations terminated, the situation appeared to be heading towards a final showdown on the streets.

"The situation right now is getting closer to civil war every minute," a protest leader, Jatuporn Prompan, said yesterday. "We have to fight on. The leaders shouldn't even think about retreat when our brothers are ready to fight on."

The Red Shirt protesters began their latest campaign to oust the government in March, saying it came to power illegitimately and was indifferent to the poor. In several rounds of violence since then, a total of 43 people have been killed and at least 1,620 wounded, according to a government toll that includes the most recent clashes.

Protesters have urged 82-year-old King Bhumibol Adulyadej to end his long silence and intervene, but there was no word from the widely revered ailing monarch.

The latest violence erupted Thursday after the Red Shirts' military strategist – a former Thai general – was shot and seriously injured, apparently by a sharpshooter, as he spoke to foreign journalists.

As night fell on Friday, defiant Red Shirt leaders led followers in Buddhist prayers and called on volunteers to bring more tyres for their barricades.

Another protest leader, Weng Tojirakarn, demanded yesterday that the government declare a ceasefire and pull back its troops because "we don't want to see a civil war. If it does happen, I don't know how many years it will take to end".

The Red Shirts, mostly rural poor, began camping in the capital on 12 March to try to force out prime minister Abhisit Vejjajiva. They claim his coalition government came to power through manipulation of the courts and the backing of the powerful military.

The military had forced Thaksin Shinawatra, the populist premier favoured by the Red Shirts, from office in a 2006 coup. Two subsequent pro-Thaksin governments were disbanded by court rulings before Abhisit became prime minister.

The occupation has forced luxury hotels and high-end shops to close for weeks. Major roads around the protest site were blocked to traffic yesterday, and the city's underground and elevated train shut down. The embassies of the US, Britain and other countries were also closed.

The political uncertainty has spooked foreign investors and damaged the vital tourism industry, which accounts for 6% of the economy.

Bangkok residents found it hard to come to terms with the violence in their city.

"I've never seen anything like this. I heard gunshots and explosions all day," said Kornvika Klinpraneat, a 7-Eleven employee. "This is like a civil war. The battle is being fought in the middle of the city."