BANGKOK - A prolonged and increasingly violent stand-off between government and red shirt protesters in Bangkok is worsening and could deteriorate into "an undeclared civil war", the International Crisis Group said.
"The Thai political system has broken down and seems incapable of pulling the country back from the brink of widespread conflict," the Brussels-based conflict resolution group said in a report released late on Friday.
"The stand-off in the streets of Bangkok between the government and Red Shirt protesters is worsening and could deteriorate in undeclared civil war."
Thailand should consider help from neutral figures from the international community, drawn perhaps from Nobel peace laureates, to avoid a slide into wider violence, it said.
Clashes between the military and the red shirts, a group of mostly rural and urban poor, have killed 27 people and injured nearly 1,000 since their campaign to force early elections began seven weeks ago.
Dozens of mysterious explosions have hit the capital, including grenade attacks on April 22 in the business district that killed one and wounded scores. Bangkok anxiously awaits an army operation to eject the Red Shirts from their tent city, which could lead to a bloodbath.
The fault lines are widening between the establishment -- big business, the military brass and an educated middle class -- and the protesters, many of whom support former Prime Minister Thaksin Shinawatra, ousted in a 2006 coup.
Civil society groups brought the government and the protesters together but the talks faltered over when to hold elections. The red shirts offered a 90-day timeframe, but the prime minister rejected that last weekend.
The crisis comes as Thailand faces its first prospect of royal succession in more than six decades.
The government has recently stepped up accusations that the red shirt movement has republican leanings -- a highly provocative claim in a country where many consider the king almost divine -- and that key figures are involved in a loose network to overthrow the monarchy.
The report recommended the creation of a high-level group of international figures, noting that Nobel Laureate and Timor Leste President Jose Ramos Horta was in Bangkok this week at his own initiative and could be joined by other figures.
The group should bring the two sides together to end the military operation and limit the protests "to a small, more symbolic number of people who do not disrupt life in Bangkok".
It could also begin negotiations on an interim government of national unity and preparations for elections.
The Thai government is unlikely to embrace international mediation. The foreign minister this week severely upbraided Western diplomats for talking with red shirt leaders at the encampment, which lies near embassies in the area that could be affected by violence.
Police boosted security at all city hospitals after red shirts stormed a hospital by their encampment, looking for troops. Protest leaders apologized afterward for the raid that forced the hospital to close and evacuate patients.
It was the second setback in a week for the red shirts after security forces on Wednesday stopped an attempt to hold "mobile rallies" outside their 3 sq-km (1.2 sq-mile) camp fortified with barricades made of tires, bamboo poles and rubble.
The encampment has become a tented city within a city, deepening a crisis that Finance Minister Korn Chatikavanij said could reduce Thailand's economic growth rate by two percentage points if it continues all year.
The Stock Exchange of Thailand expressed confidence in the economy -- Southeast Asia's second largest -- but acknowledged foreign investors had turned cautious, selling $264 million in stocks over the past six trading days. That is driving the baht currency to its largest weekly loss since January.
The hospital incursion raised concerns about how much control the leaders have over their followers.
Prime Minister Abhisit said in a televised statement after the hospital raid that the government would not allow "intimidation of the public and will act according to necessity to prevent that", he said.
The red shirts have ignored repeated warnings like that.
Royalist "yellow shirts", who besieged Bangkok's airports for a week in 2008 in a campaign to topple a pro-Thaksin government, have re-emerged to demand military action to disperse the red shirts, warning they could again take matters in their own hands.
Tension remains high in Bangkok after a soldier was killed on Wednesday in a clash on a suburban highway packed with vehicles.
The violence is taking its toll on tourism, which employs 15 percent of the workforce. Arrivals at Bangkok's Suvarnabhumi Airport have fallen by a third since the violence broke out.
Kim Eng Securities, Thailand's top brokerage, warned that investors may still be underestimating the impact unrest is having on economic growth. "With 60 percent of GDP growth hinging on consumption, there is downside risk," it said.