* Rival M23 factions fight in Rutshuru - U.N. radio, local sources
* Divisions could undermine peace talks
* Rebel spokesman denies any split
By Jonny Hogg
KINSHASA, Feb 26 (Reuters) - At least eight people were killed - most of them civilians - when fighting erupted between rival factions of eastern Congo's most powerful rebel group, a U.N.-backed radio station and a local source said.
The clashes deep inside territory controlled by the M23 insurgents risk undermining regionally-backed peace talks in neighbouring Uganda between the fighters and Democratic Republic of Congo's government.
They appear to be the first serious sign of tensions within the group, which caused regional shockwaves in November when it routed government troops and pushed past U.N. peacekeepers to briefly seize Goma, the provincial capital of North Kivu.
U.N.-backed Radio Okapi said the fighting broke out on Sunday in the rebel stronghold of Rutshuru between fighters loyal to M23's military chief, Sultani Makenga, and supporters of warlord Bosco Ntaganda.
Ntaganda triggered the insurgency last April when he quit his post as a Congolese army general, taking hundreds of soldiers with him.
The eight people died when a rocket hit a bar in the centre of the town, the radio station reported.
A local businessman told Reuters on condition of anonymity that he saw the eight dead bodies and said the fighting was between rival elements of M23.
M23 spokesman Bertrand Bisimwa acknowledged here had been fighting in Rutshuru but denied any factional split, instead blaming another rebel group, Rwanda's FDLR.
"It wasn't our men fighting, it was the FDLR, unfortunately right in the centre of Rutshuru," he said, without elaborating "Everything is calm in our ranks."
No one from the FDLR could be reached to comment.
WAR CRIMES FUGITIVE
Nicknamed "The Terminator", Rwandan-born Ntaganda is wanted by the International Criminal Court for alleged war crimes including the massacre of civilians during a previous Tutsi rebellion.
The United Nations says he controls the M23 rebellion, but M23 has repeatedly denied his involvement in the group.
Congo's eastern borderlands have suffered nearly two decades of conflict stoked by ethnic and political enmities and fighting over the region's rich resources of gold, tin, tungsten and coltan - a precious metal used to make mobile phones.
Successive attacks by myriad rebel and militia groups and government soldiers have made the region notorious among rights groups for mass killings, recruitment of child soldiers and rapes used as a weapon of war.
Political analysts say stalled talks between M23 and the Congolese government in Uganda could be exposing old grievances between Makenga and Ntaganda, who have previously found themselves in different factions of rebel movements in Congo.
A split within M23 could undermine peace negotiations, particularly if one faction chooses to continue fighting.
The group accuses the government of failing to hold up its end of a March 23, 2009 peace deal - from which it takes its name - and has sought to gain popular support by tapping into public frustration over the slow pace of reforms in Congo.
M23 has controlled Rutshuru since July and has made it a central administrative zone for the movement. The town, in North Kivu province, is close to the Ugandan and Rwandan borders.
(Editing by Richard Valdmanis and Pravin Char)