Russia and the Organisation for Security and Cooperation in Europe (OSCE) expressed concern over the fighting -- the heaviest in the region so far this year.
"A general mobilisation has been declared," Irina Gagloyeva, a spokeswoman for the separatist government, told AFP. "If the shelling resumes, South Ossetia will respond with heavy weaponry.
Georgian forces launched a large-scale attack on the region overnight, she said, firing from three directions with mortars, grenade launchers and small arms. Three people were killed and 10 wounded.
Georgia denied it has launched the attack, saying its forces had reacted after Georgian villages came under fire from South Ossetian rebels.
"Georgian forces only opened fire in response," Interior Ministry Spokesman Shota Utiashvili told AFP. He said there were no reports of casualties in Georgian-controlled areas.
"These attacks are a continuation of the aggressive acts that started yesterday with the attack on Dmitry Sanakoyev," he said, in reference to a pro-Georgian official who was targeted by a roadside bomb on Thursday.
Sanakoyev escaped uninjured from the attack, but three of his bodyguards were wounded.
Russian Foreign Minister Sergei Lavrov expressed grave concern over the clash and urged Georgia to sign a non-aggression pact, Interfax news agency reported.
"We are seriously concerned by the latest events in South Ossetia.... We must persuade Tbilisi to sign a legally binding document guaranteeing non-aggression," Lavrov was quoted as saying on the sidelines of a visit to Turkmenistan.
The OSCE, which monitors a ceasefire in South Ossetia, expressed "profound concern" over the fighting and a series of explosions earlier this week in another separatist Georgian region, Abkhazia.
The incidents "are worrying signs of growing tension," the OSCE's chairman in office, Finnish Foreign Minister Alexander Stubb, said in a statement.
"I call on all parties to use all necessary tools at their disposal to restore dialogue, a pre-condition for building confidence. The OSCE continues to follow the situation carefully and stands ready to assist the parties to defuse tension," he said.
On Thursday, the separatists had blamed Georgian special forces for a bomb attack that killed a South Ossetian police chief outside his home.
South Ossetia has accused Tbilisi of preparing to retake the rebel region, which broke away from central control during a war in the early 1990s.
Gagloyeva said the general mobilisation was an unusual step that had not been taken since similar shelling in the spring of last year. She alleged that Georgia has also been massing tanks near the region in recent days.
Fighting in the region, a patchwork of Ossetian and Georgian settlements in the mountainous north of the country, generally intensifies during the summer months.
Tensions over South Ossetia and Abkhazia have soared since Moscow announced earlier this year that it was establishing formal ties with the regions' rebel governments.
Tbilisi accuses Russia of seeking to annex the two territories and derail its efforts to join the NATO military alliance. Russia in turn accuses Georgia of preparing to take back the breakaway regions by force.
Abkhazia closed its border with the rest of Georgia earlier this week after 10 people were wounded in a string of explosions the rebels blamed on Tbilisi.
