Kenya's President Mwai Kibaki appealed for calm and offered to talk to political rivals on Thursday after another day of battles between police and protesters disputing his re-election.

"I am ready to have dialogue with the concerned parties once the nation is calm and the political temperatures are lowered enough for constructive and productive engagement," Kibaki told reporters.

The turmoil has already cost at least 300 lives and threatens to wreck Kenya's reputation as one of Africa's most promising democracies, strongest economies and favourite tourist destinations.

Warning Kenya was "quickly degenerating into a catastrophe of unimaginable proportions," Attorney General Amos Wako said both sides should agree on an independent person or body to carry out "a proper tally" of votes from the December 27 poll.

"Such an exercise will go a long way in assuaging the inflamed passions of people," Wako said. But he added that while the tally should help political mediation, only a court could overturn Kibaki's win.

African Union chair Ghana sought to build consensus around the continent for mediation. The European Union and United States urged both sides to seek a coalition government.

After hours of police clashes with thousands of protesters trying to reach central Nairobi, the opposition called off a planned demonstration in Uhuru (Freedom) Park, saying it wanted to save lives.

But another protest was scheduled for Tuesday.

Shots cracked out as police fired over the heads of protesters on Thursday morning and smoke billowed over the city slums.

Flames burst from a large crucifix suspended from the roof of a burning church in Kibera, one of Africa's largest slums, and a hotbed of support for opposition leader Raila Odinga.

Currency and stock trading was halted on Thursday, with the Kenyan shilling and share prices both down about five percent since the troubles began. Tea and coffee auctions were delayed.

The World Bank said the violence could threaten Kenya's "impressive" economic gains and harm neighbouring countries that depend on it as a business hub.

From dawn, riot police were out in force as the city, virtually deserted by workers, was slowly transformed into a battleground.

Several columns of protesters surged out of slums towards the city-centre, singing the national anthem, chanting "Peace" and waving twigs and leaves.

When confronted with police lines, they at first sat or kneeled in roads. As tempers rose, they began burning cars and buildings. Police responded with teargas and water cannons.

They fired in the air when the crowd kneeled, shouting "Kill us all", a Reuters witness said.

Demonstrator Julius Akech yelled: "This is dictatorship now."  The daily violence has shocked world leaders and choked supplies of fuel and other goods to a swathe of central Africa.

Pro-Kibaki legislators called for opposition leader Raila Odinga and others to be charged by the International Criminal Court for "ethnic cleansing and genocide".

The opposition has itself charged that a police order to shoot during protests was "bordering on genocide".

Numerous international figures called for reconciliation in a nation previously known as an African peacemaker rather than a trouble zone itself.

"This is a country that has been held up as a model of stability. This picture has been shattered," said South African Nobel peace laureate Archbishop Desmond Tutu, in Kenya to try to start mediation.

"This is not the Kenya that we know."    

Odinga called Kibaki a "thief" who had carried out a civilian coup. But he said he would accept international mediation and proposed setting up an interim power-sharing government to prepare for a re-run of the vote.

"The people will not take this vote-rigging by the government lying down," he said.