Ammon News - CAIRO (Reuters) - At least 42 people were killed in Cairo on Monday, medical sources said, when Islamist protesters angered by the military overthrow of President Mohamed Mursi said they were fired on at the Cairo military barracks where he is being held.

More than 200 were wounded in a sharp escalation of Egypt's political crisis, and Mursi's Muslim Brotherhood urged Egyptians to rise up against the army, which they accuse of a military coup to remove the elected leader.

The military said "a terrorist group" tried to storm the Republican Guard compound and one army officer had been killed and 40 wounded. Soldiers returned fire when they were attacked by armed assailants, a military source said.

At a hospital near the Rabaa Adawia mosque where Islamists have camped out since Mursi was toppled on Wednesday, rooms were crammed with people wounded in the violence. Many of the sheets and clothes were heavily stained with blood.

The Brotherhood's official spokesman, Gehad El-Haddad, who is at a pro-Mursi sit-in at a mosque near the scene, said shooting broke out in the early morning while Islamists were praying and staging a peaceful sit-in outside the barracks.

As an immediate consequence, the ultra-conservative Islamist Nour party, which initially supported the military intervention, said it was withdrawing from stalled negotiations to form an interim government for the transition to fresh elections.

The military has said that the overthrow was not a coup, and it was enforcing the will of the people after hundreds of thousands took to the streets on June 30 to call for his resignation.

But pro- and anti-Mursi protests continued in Cairo, Alexandria and other cities, and resulted in clashes on Friday and Saturday that left than 35 dead.

It leaves the Arab world's largest nation of 84 million people in a perilous state, with the risk of further enmity between people on either side of the political divide while an economic crisis deepens.

SHOTS DURING PRAYERS

Abdelaziz Abdelshakua, from Sharqia Province northeast of Cairo, was wounded in his right leg with what he says was a live round.

"We were praying the dawn prayer and we heard there was shooting," he said. He said an army officer assured them no one was shooting, then suddenly they were under fire from the direction of the Republican Guard.

"They shot us with teargas, birdshot, rubber bullets everything. Then they used live bullets."

Al Jazeera's Egypt news channel broadcast footage of what appeared to be five men killed in the violence, and medics trying to revive a man at a makeshift clinic at a nearby pro-Mursi sit-in.

A Reuters journalist at the scene saw first aid helpers attempting mouth-to-mouth resuscitation on a dying man. Wounded people were being ferried to the field hospital on motorbikes, given first aid treatment and taken away in ambulances.

The military overthrew Morsi on Wednesday after mass nationwide demonstrations led by youth activists demanding his resignation. The Brotherhood denounced the intervention as a coup and vowed peaceful resistance.

ROADBLOCKS

Military vehicles sealed off traffic in a wide area around Rabaa Adawia mosque. The army also closed two main bridges across the Nile River with armored vehicles.

Talks on forming a new government were already in trouble before Monday's shooting, after the Nour Party rejected two liberal-minded candidates for prime minister proposed by interim head of state Adli Mansour.

Nour, Egypt's second biggest Islamist party, which is vital to give the new authorities a veneer of Islamist backing, said it had withdrawn from the negotiations in protest at what it called the "massacre at the Republican Guard (compound)".

"The party decided the complete withdrawal from political participation in what is known as the road map," it said.

The military can ill afford a lengthy political vacuum at a time of violent upheaval and economic stagnation.

Scenes of running street battles between pro- and anti-Mursi demonstrators in Cairo, Alexandria and cities across the country have alarmed Egypt's allies, including key aid donors the United States and Europe, and Israel, with which Egypt has had a U.S.-backed peace treaty since 1979.

Huge crowds numbering hundreds of thousands gathered in different parts of Cairo again on Sunday were peaceful, but nonetheless a reminder of the risks of further instability.

BITTER BLOW

For many Islamists, the overthrow of Egypt's first freely elected president was a bitter reversal that raised fears of a return to the suppression they endured for decades under autocratic rulers like Mubarak.

On the other side of the political divide, millions of Egyptians were happy to see the back of a leader they believed was orchestrating a creeping Islamist takeover of the state - a charge the Brotherhood has vehemently denied.

Washington has not condemned the military takeover or called it a coup, prompting suspicion within the Brotherhood that it tacitly supports the overthrow.

Obama has ordered a review to determine whether annual U.S. assistance of $1.5 billion, most of which goes to the Egyptian military, should be cut off as required by law if a country's military ousts a democratically elected leader.

Egypt can ill afford to lose foreign aid. The country appears headed for a looming funding crunch unless it can quickly access money from overseas. The local currency has lost 11 percent of its value since late last year.