By Simon Lewis and Wa Lone

YANGON (Reuters) - Muslim residents and rights activists say a military operation in northwestern Myanmar has killed more people than official reports have acknowledged, as a fresh bout of ethnic unrest threatens to undermine the country's fledgling peace process.

The government, led by Nobel Peace Prize winner Aung San Suu Kyi, has said the army and police in Rakhine State are fighting a group of at least 400 insurgents, drawn from the Rohingya Muslim minority, with links to Islamist militants overseas.

While officials say the army has been conducting carefully targeted sweeps against the group behind attacks on police border posts on Oct. 9, residents who spoke to Reuters accused security forces of killing non-combatants and burning homes.

With the area around Maungdaw Township, near the border with Bangladesh, under military lockdown it was not possible to independently verify either side's version of events.

The violence has destabilized Myanmar's most volatile state, where the relations between the Rohingya and majority Buddhists are at their lowest point since hundreds of people were killed and thousands displaced in ethnic violence in 2012.

Delicate efforts to rebuild fragile intercommunal ties since then have been shattered, marking a massive setback for the No.1 goal of Suu Kyi's government - securing a lasting peace and unifying the country.

In videos posted online, armed men speaking the Rohingya language have claimed responsibility for the coordinated attacks on Oct. 9 that ignited the region, where Rohingya face severe restrictions on their movement and access to basic services.

DEADLY CLASHES

State-run media have reported that 30 "attackers" have been killed by security forces since Oct. 9, including two women reported to have been armed with swords.

But Reuters interviews with six residents and community leaders in Maungdaw Township - as well as diplomats in Yangon and rights groups - paint a different picture.

"Clearly there are more than 30 killed," said Chris Lewa of the Arakan Project, a monitoring group that says it has drawn information from a network of sources throughout Maungdaw Township. "And many of them are civilians, not attackers."

Lewa said the army was using "typical counter-insurgency measures against civilians", including "shooting civilians on sight, burning homes, looting property and arbitrary arrests".

Ye Naing, a director at the Ministry of Information, said the official reports coming out of Maungdaw could be trusted.

"The current operation is not blind searching. The military has the information from interrogations, so the target is very clear and the scope of the operation is narrow," he said.

The military did not respond to requests for comment.

OPERATION ZONE

Foreign reporters have not been allowed into the area the military has declared an "operation zone", but Reuters was able to contact some residents and community leaders by telephone.

The people, who did not want to be identified, contradicted several of the reports in state media, saying that the death toll in the area was higher than reported and that a number of those killed were unarmed.

In one of the disputed accounts, the state-run Myanma Alinn newspaper said 30 Muslims attacked government forces on Oct. 11 near Kyetyoepyin village, and that 10 Rohingyas were killed in the subsequent fighting. After the clash, the insurgents fled, setting fire to homes, the report said.

But several Rohingya residents from the area said they believed at least 19 people, including eight women, were killed by security forces that day. They also say it was the soldiers who set a large part of the village on fire.

The United Nations has said the violence is preventing aid agencies from delivering food and medicines to the region.

The conflict underlines the power the army retains in Myanmar, which was ruled for decades by a junta, despite the democratic reforms that brought Suu Kyi to power this year.

Suu Kyi has urged the military to use restraint and act in accordance with the law, but day-to-day handling of the crisis is in the hands of the home affairs minister, who, like the heads of two other security ministries, is a general appointed by the military.

Though feted abroad as a champion of democracy, Suu Kyi has also faced international criticism for not doing enough to ease the plight of around 1.1 million Rohingya living in Rakhine, most of whom are denied Myanmar citizenship.

A commission on solving the Rakhine quagmire led by former U.N. chief Kofi Annan and appointed by Suu Kyi in August was in Myanmar this week, but would not travel to the troubled state, officials said.

The government has blamed the violence on a little known Islamist group it says has links to the Pakistani Taliban.

But Suu Kyi said during a trip to India this week that the government's initial statement may have been based on unreliable sources, underlining how the sudden upsurge in violence has taken it by surprise.

Diplomats believe that the group's outside support is largely limited to the Rohingya diaspora, many of whom live in Pakistan and Saudi Arabia, rather than established Islamist militant groups.

The initial attacks, in which three border police outposts were overrun by hundreds of people, most only lightly armed, showed a degree of sophistication not seen before in violence involving the Rohingya, but did not suggest the group was especially well-funded or armed, diplomats said.

(Additional reporting by Mohammad Nurul Islam in Cox's Bazar, Bangladesh; Editing by Alex Richardson)