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The BBC's Andrew Harding says it appears Bentiu was recaptured from rebels with just a "small amount of resistance"
The UN Security Council has urged South Sudan President Salva Kiir to release political prisoners to help bring an end to the bitter conflict there.
Rebel leader, Riek Machar, wants 11 people freed before agreeing to peace.
Mr Machar's forces appear on the back foot after losing the town of Bentiu to government forces on Friday.
The government says it is mobilising thousands of troops to retake Bor - the last major town controlled by Mr Machar's forces.
Analysis
Late last year, in the chaotic early days of his rebellion, Riek Machar was in a pretty strong position. He had taken the state capitals Bor and Bentiu, and oilfields in Unity state near Bentiu. His rebels were also fighting for control of Malakal, the gateway to the Upper Nile oilfields.
Losing towns was embarrassing for President Salva Kiir, and oil is critical to South Sudan's economy. However, the government held on to Malakal, and has now regained Bentiu. It seems likely it will recapture the Unity state oilfields too.
All this is a boost to President Kiir, and significantly weakens Mr Machar's hand. He will find it harder to push through his demands at the Addis Ababa talks, and it is now less likely that other soldiers will defect to the rebel cause.
Nevertheless he will keep fighting, and momentum moves swiftly in this conflict. It is a serious setback for the former vice-president, but not the end of the war.
Mr Machar, a sacked vice-president, has expressed determination to hold on to the town, the capital of Jonglei state, some 200 km (125 miles) north of the capital, Juba.
Speaking to the AFP news agency by phone, he sought to explain the loss of Bentiu, capital of the oil-rich Unity State.
"It was to avoid fighting in the streets and save civilian lives," he said.
Army spokesman Philip Aguer said that fighters on both sides had been killed.
Ahead of the government advance, thousands of people fled Bentiu, while several thousand sought refuge in a UN base in the town.
Peace effortsThe 15-nation UN Security Council statement on prisoners was made in the hope of kick starting peace talks between representatives of the two sides in Ethiopia.
But Mr Kiir has insisted that the 11 jailed must face the force of the law.
The UN statement called for a ceasefire and wider peace talks. The Security Council also "strongly discouraged external intervention that would exacerbate the military and political tensions" - seen as a referring to Uganda, which has been sending troops and attack helicopters to bolster government forces.
The peace talks, in a luxury hotel in Addis Ababa, are aimed at an immediate cessation of hostilities, but little progress has been reported.
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The BBC outlines the background to South Sudan's crisis - in 60 seconds.
The BBC's Andrew Harding in the South Sudanese capital, Juba, says the question now is whether the recapture of Bentiu will spur on negotiators in Ethiopia to reach a ceasefire agreement to avoid further fighting.
"Start Quote
End QuoteSouth Sudan could collapse into total anarchy"
The conflict, which began on 15 December, has seen outbreaks of ethnic violence between Dinkas, the community of President Salva Kiir, and Nuers, like Mr Machar.
Although both leaders have influential backers from the other's community, the conflict has often taken on an ethnic dimension.
According to the UN, the fighting has killed "very substantially in excess" of 1,000 people.
South Sudan is the world's newest state. It became independent in 2011 after seceding from Sudan.
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