Thailand's military says it has deployed an F-16 fighter jet for action against Cambodia, with another five being readied, after days of soaring tensions.
One of the aircraft has fired into Cambodia and destroyed a military target, according to reports from the Thai army.
"We have used air power against military targets as planned," an army spokesman said.
Cambodia's Defence Ministry said Thailand used fighter jets to drop two bombs on a road and has condemned the "reckless, brutal, Thai military aggression".
The clashes began early on Thursday near a disputed temple along the two countries' eastern border around 360 km from the Thai capital Bangkok.
Two civilians - a 12-year-old child and an adult - were killed after Cambodia fired fired two BM-21 rockets into the middle of a Thai village this morning.
It also follows a landmine incident yesterday in which five Thai soldiers were injured near the border.
GETTY
|PICTURED: Cambodian soldiers look at people evacuate from along the Cambodia-Thailand border after Cambodian and Thai troops exchanged fire
Thailand then told Cambodia to take responsibility for the incident, which it said violates international law.
A Thai military official later confirmed that Thailand is closing all border points with Cambodia.
The Cambodian Government has downgraded diplomatic relations with Thailand to their lowest level, following similar moves by the other side.
The Thai army later said in a statement: "All Thai F-16s have returned home safely and intact, after a rapid deployment to drop bombs on Cambodian battalions."
This morning, the Thai army said its troops heard a drone before seeing six armed Cambodian soldiers moving closer to Thailand's station.
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|PICTURED: A Cambodian BM-21 multiple rocket launcher returns from the Cambodia-Thai border
It said Thai soldiers tried to shout at them to defuse the situation - but the Cambodians started to open fire.
Around 40,000 civilians from 86 villages in Thailand have been evacuated, the district chief of Kabcheing in Surin province, Sutthirot Charoenthanasak, told Reuters.
Meanwhile, the Cambodian Prime Minister Hun Manet has confirmed that Thailand has attacked Cambodian army positions.
He added: "Cambodia has always maintained a position of peaceful resolution of problems... But in this case, we have no choice but to respond with armed force against armed aggression."
Phumtham Wechayachai, Thailand's acting Prime Minister, said that the situation on the border "remains delicate".
REUTERS
|PICTURED: A woman walks past the embassy of Cambodia in Thailand after the latter recalled its ambassador. Armed conflict has now broken out between the two
REUTERS
|PICTURED: Thai troops on display near the border in June
However, both Cambodia and Thailand have accused each other of starting the conflict.
For more than a century, the two neighbouring nations have contested sovereignty at various points along their border, which has led to skirmishes over several years and at least a dozen deaths, including during a weeklong exchange of artillery in 2011.
Tensions were reignited in May following the killing of a Cambodian soldier during a brief exchange of gunfire, which escalated into a full-blown diplomatic crisis and now has triggered armed clashes.
Then, on Wednesday, Thailand recalled its ambassador to Cambodia, and said it would expel Cambodia's envoy in Bangkok in return, after two Thai soldiers lost limbs to landmines in the disputed area.