Ethnic armed forces fighting Myanmar's military say they have captured a key trading town on the border with Thailand.

The loss of Myawaddy is expected to deal the biggest blow to the junta since it seized power in a coup three years ago.

The Karen National Union said in a statement on Friday that it will cooperate with the Thai government to establish peace and stability on both sides of the border.

The group indicated that it will not block the cross-border flow of goods and people.

Thai troops are on alert in a town across the river from Myawaddy. A border check-point is crowded with Myanmar citizens seeking to flee to the Thai side.

Ethnic minority forces and pro-democracy fighters launched a fierce offensive against the military last fall.

They have so far taken control of areas near the border with Bangladesh in the western state of Rakhine, and a border town near China in the northern state of Kachin.