BANGKOK, Thailand - Thailand's government prepared to crack down Thursday on protesters occupying the capital's two airports, but called on the public not to panic as rumours of a coup swept the city.

Prime Minister Somchai Wongsawat declared a state of emergency around the capital's two main airports, which would allow security forces to oust thousands of anti-government protesters from the terminals.

Somchai accused the protesters of "holding the country hostage and the public hostage."

"I do not have any intention to hurt any members of the public," he added.

However, the imposition of the measures raised the possibility that violent clashes could break out as authorities moved on Suvarnabhumi International Airport and the city's older, smaller Don Muang Airport.

The declaration, which applies only to the two terminals, empowers the government to suspend some civil liberties, including restricting the movement of people and prohibiting mass assembly in certain locations.

The People's Alliance for Democracy, which has been demanding the resignation of Somchai and his government, seized control of Suvarnabhumi airport on Tuesday, forcing the cancellation of all flights in and out of the capital and forcing thousands of tourists to hole up in Bangkok hotels.

The standoff, which began three months ago when the group occupied the prime minister's office compound, has paralyzed the government, battered the stock market, spooked foreign investors and dealt a serious blow to the tourism industry.

Some Thai economists have estimated that tourism losses alone in the remainder of this year could run to US$4.2 billion, equal to 1.5 per cent of gross domestic product.

Government Spokesman Nattawut Sai-kua earlier called the seizure of the airports "a terrorist act."

"The prime minister says we have to use peaceful means," he said. "(Security officials) will negotiate first and we will go step by step, adhering to international standard and the law."

Somchai said navy personnel would help police in clearing Suvarnabhumi airport. The air force will assist at Don Muang. He did not say when the authorities would act.

Amid the standoff, coup rumours swirled around the capital after Thailand's powerful army commander, Gen. Anupong Paochinda, suggested Wednesday that Somchai call new elections.

But the prime minister rejected the idea. Rumours were further fuelled by media reports of tank movements that the military later said were only a training exercise.

"The government is asking all troops to remain in position and not to move anywhere in order to quell a rumour" of a coup, said Nattawut. "We ask the public not to panic or to worry about the situation."

Army spokesman Col. Sansern Khaewkamnerd also denied the rumour.

"As the army chief has said many times, a coup will not resolve anything, and there is no planning going on to stage one," he told The Associated Press.

In September 2006, the military staged a bloodless coup to oust former prime minister Thaksin Shinawatra after months of protests staged by the same group that is demanding the resignation of the current government. The protest alliance says the prime minister, who is Thaksin's brother-in-law, is merely the former leader's puppet.

They accuse Thaksin and his allies of corruption and abuse of power. Thaksin is in exile, a fugitive from a conviction for violating a conflict of interest law.