BEIRUT (Reuters) - The Syrian army and allied militia clashed with rebels near Damascus on Sunday, threatening to disrupt planned repairs to a pumping station that supplies most of the capital's water, a war monitor said.

The Syrian Observatory for Human Rights said the army and the allied Lebanese militia Hezbollah had made some gains against rebels in the Wadi Barada area. Heavy fighting reached the outskirts of the Ain al-Fija town, where the waterworks is located, the British-based war monitor reported.

Artillery shelling by government forces killed nine people and wounded at least 20 others in the nearby Deir Qanoun village, it said. A local media office for opposition activists said the shelling hit a center for displaced people.

Wadi Barada, a mountainous valley northwest of Damascus, has become a major battlefront in the Syrian war, and the damage to the facility has caused severe water shortages in the capital since the beginning of the year.

The governor of the Damascus countryside province said on Friday that engineers had entered Ain al-Fija to repair the water station, as part of a wider agreement that included the departure of some rebels from Wadi Barada and a settlement with others who would remain there.

But the plan was derailed on Saturday evening, after armed men killed the head of a negotiation team who was overseeing the agreement and repairs, the Observatory said. The warring sides accused each other of assassinating the official, who had only assumed his role a day before.

A military media unit run by Hezbollah said the army captured some positions overlooking Ain al-Fija on Saturday, after taking nearby villages in recent days and edging closer towards the water facility.

The water station was knocked out of service in late December. The United Nations has said it was damaged because "infrastructure was deliberately targeted", without saying who was responsible.

This left four million people in Damascus without safe drinking water supplies.

Rebels and activists have said government bombardment damaged the waterworks. The government said insurgent groups polluted it with diesel, forcing the state to cut supplies.

Wadi Barada has become the main focus of fighting between forces loyal to President Bashar al-Assad, backed by Russia and Iran, and rebel groups seeking to oust him, after the government took full control of Aleppo city last month.

Fighting in Wadi Barada has tarnished a shaky nationwide ceasefire that began on Dec 30., brokered by Russia and Turkey, one of the main supporters of many rebel groups.

The army and allied fighters launched an offensive in late December to capture Wadi Barada. The government says it wants to secure the capital's main water supply while rebel groups and local activists say pro-government forces are using the water issue to make political and military gains.

Rebels in Wadi Barada have allowed government engineers to maintain and operate the valley's pumping station since they took control of the area in 2012.

Fighters have, however, cut water supplies several times in the past to put pressure on the army not to overrun the area.

The United Nations estimates 45,000 people live in the Wadi Barada area, and thinks at least 7,000 people have been displaced form the area in recent fighting.

(Reporting by Ellen Francis; Editing by Clelia Oziel and Tom Heneghan)