Scores of gunmen attacked a Chinese-run oil field in a remote area of Ethiopia on Tuesday killing 74 people including nine Chinese after a gun battle that lasted for almost one hour.
Seven Chinese workers were also kidnapped in the attack which the government blamed on a separatist group, said Ethiopian prime minister's spokesman, Berekat Simon.
"It is a massacre. It is a terrorist act, ordered by a terrorist alliance that includes ONLF," said Simon, referring to the Ogaden National Liberation Front.
The attack echoed a spate of killings and kidnappings in recent months that have plagued Chinese workers in Nigeria, where Beijing is also aggressively seeking to develop the nation's oil reserves.
It was the first attack on an oil field in Ethiopia since the ONLF rebel group issued a threat to foreign companies against operating in the eastern region one year ago.
"They are trying to intimidate and blackmail foreigners who want to come to Ethiopia. But we will not let that happen," Simon said.
The ONLF had not claimed the attack late Tuesday.
Around 200 unidentified gunmen attacked the oil field in Somali state where China's Zhongyuan Petroleum Exploration Bureau is searching for oil, according to a company manager quoted by China's official Xinhua news agency.
More than 100 soldiers protecting the field engaged the attackers in a fierce 50-minute gun battle, said the manager, Xu Shuang.
A spokesman for the Chinese embassy in Addis Ababa confirmed the attack but would give no further details.
The Ethiopian government spokesman said some Ethiopians may also have been kidnapped during the assault on the oil field at Abole, a small town about 120 kilometres (75 miles) from the Somali state capital of Jijiga.
Ethiopia's federal police spokesman told that his forces were fully aware of the situation.
"Security officials are looking into the matter and a team will be sent to the area pending further developments," said Demsash Hailu.
"We are undertaking investigations in collaboration with local and regional police.
The ONLF is a rebel group fighting for the independence of ethnic Somalis in Ethiopia's Ogaden region.
In April last year, the group warned all foreign firms not to work in the area and specifically mentioned two Indian energy companies that had expressed interest in working there.
In May 2006, the ONLF claimed the government had deployed troops to the region ahead of a planned seismic survey by China's Zhongyuan Petroleum Exploration Bureau and Malaysian oil giant Petronas.
The ONLF was formed in 1984. It states that the Ogaden people have been marginalised and brutalised by the Ethiopian government.
"After carefully analysing the situation, the Ethiopian army will pursue the perpetrators and bring them to justice as we have done in the past," the Ethiopian prime minister's spokesman said.
Addis Ababa has repeatedly accused the insurgents of carrying out attacks on civilians.
Ogaden, a dry belt in Somali state, is believed to be lying on large quantities of gas, but further exploration is needed to verify the exact amount and develop the fields.