Around 50 military trucks were deployed in Meiktila, where homes and mosques have been torched by mobs armed with with knives and sticks in three days of communal rioting.
The clashes are the latest sign of worsening tensions between Muslims and Buddhists, presenting a serious challenge for the quasi-civilian regime as it looks to reform the country after decades of iron-fisted military rule.
Violence in Meiktila, located 130 kilometres north of the capital Naypyidaw, began on Wednesday after an apparent argument in a gold shop spiralled into pitched battles.
Mosques have been reduced to ashes, while gangs of young men, including monks, have roamed the streets.
The town's sports ground has become a makeshift refuge for at least a thousand local Muslims, according to a journalist at the scene.
Kyaw Kyaw, a 27-year-old Muslim religious leader who has lived in the town since his childhood, said some Buddhist monks and local people had helped them escape.
"We could not take anything when we left our homes. We had to run for our lives," he said, adding that he was not sure what was behind the sudden explosion of violence.
"We are humans as well... We have been living with Buddhists for many years. I am very upset about what has happened," he said on Friday.
Meiktila remained tense on Saturday, although no new clashes were reported overnight.
The president's office said the state of emergency would enable the military to help restore order -- a significant move in a country trying to emerge from the legacy of junta rule, which ended two years ago.
Journalists in the town have seen the charred remains of bodies on the roadside, while one group of reporters was threatened at knife-point by a group of men and monks who forced them to hand over their camera memory sticks.
The United Nations, US, Britain and rights groups have called for calm and dialogue between communities amid fears that the violence could spread.
It is the worst communal violence since a wave of clashes between Buddhists and Muslims in the western state of Rakhine last year that left at least 180 people dead and more than 110,000 displaced.
Myanmar's Muslims -- largely of Indian, Chinese and Bangladeshi descent -- account for an estimated four percent of the population of roughly 60 million, although the country has not conducted a census in three decades.
Religious violence has occasionally broken out in the past in some areas across the country, with Rakhine state a flashpoint for the tensions.
Since violence broke out there last year, thousands of Muslim Rohingya -- including a growing number of women and children -- have fled the conflict in rickety boats, many heading for Malaysia.-Channel News Asia (March 23, 2013)
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