Five demonstrators died overnight Thursday in the worst violence since Mohamed Morsi became Egypt's first Islamist president in June.

The five were killed by gunfire or buckshot as nearly 350 others were wounded when allies and foes of Morsi clashed around the presidential palace in Cairo, state news agency MENA said.

They started off by lobbing fire bombs and rocks at each other on Wednesday as their simmering standoff over the president's expanded powers and a new constitution turned violent.

Morsi drew the wrath of the opposition and many in the magistrature by assuming exceptional powers under a November 22 decree.

Bloodied protesters were seen carried away as gunshots rang out and the rivals torched cars and set off fire crackers near the presidential palace, where opponents of Morsi had set up tents before his supporters drove them away.

Riot police were eventually sent in to break up the violence, but clashes still took place in side streets near the palace in the upscale Cairo neighborhood of Heliopolis.

In the early hours of Thursday gunshots rang out intermittently and sporadic violence continued, an AFP correspondent said.

Many of the opposition had left and a few hundred protesters remained outside the palace.

The violence spread beyond the capital, with protesters torching the offices of the powerful Muslim Brotherhood in the Mediterranean port city of Ismailiya and in Suez, witnesses said.

Sobhi Saleh, a Brotherhood official and member of the constituent assembly

-- the body that drafted the controversial charter -- was attacked and beaten by opposition protesters in the northern city of Alexandria, MENA reported.

The Brotherhood urged protesters on both sides to withdraw, as did Prime Minister Hisham Qandil.

The United States, Britain and the European Union all appealed for restraint and dialogue, as did the prestigious Islamic institution Al-Azhar, based in Cairo.

"It's a civil war that will burn all of us," said Ahmed Fahmy, 27, as the clashes raged behind him.

"They (Islamists) attacked us, broke up our tents, and I was beaten up,"

said Eman Ahmed, 47. "They accused us of being traitors."

Activists among the Islamist marchers harassed television news crews, trying to prevent them from working, AFP reporters said.

Wael Ali, a 40-year-old Morsi supporter with a long beard, said: "I'm here to defend democracy. The president was elected by the ballot box."

At the heart of the dispute is a decree by Morsi in which he gave himself sweeping powers, and the hasty subsequent adoption of a draft constitution in a process boycotted by liberals and Christians.

But despite the protests prompted by the decree two weeks ago, Vice President Mahmud Mekki said a referendum on the charter "will go ahead on time" as planned on December 15.

The opposition would be allowed to put any objections they have to articles of the draft constitution in writing, to be discussed by a parliament yet to be elected.

The clashes erupted after thousands of Islamists rallying to the call of the Muslim Brotherhood bore down on the palace, tearing down the opposition tents.

Prominent opposition leader and former United Nations nuclear watchdog chief Mohamed ElBaradei said Morsi bore "full responsibility" for the violence.

He said the opposition, jointly led by former Arab League chief Amr Mussa and ex-presidential candidate Hamdeen Sabbahi, was ready for dialogue, but only if Morsi rescinded the decree.

He added they would use "any means necessary" to scupper the charter, but stressed that these would be peaceful.

Meanwhile, three of Morsi's advisers resigned over the crisis, MENA reported, naming Amr al-Laythi, Seif Abdel Fattah and Ayman al-Sayyad.

Sunni Islam's highest authority, Al-Azhar Grand Imam Ahmed al-Tayyeb, urged "all Egyptians of all persuasions to exercise restraint and to recourse to peaceful and civilized dialogue," describing the crisis as a "disaster," MENA reported.

As the country faces its most divisive crisis since Morsi took power in June, the United States called for an open and "democratic dialogue".

"The upheaval we are seeing... indicates that dialogue is urgently needed.

It needs to be two-way," US Secretary of State Hillary Clinton said.

British Foreign Secretary William Hague called for all sides to "show restraint", and urged the authorities to "make progress on transition in an inclusive manner which allows for a constructive exchange of views."

EU diplomatic chief Catherine Ashton also called for restraint and urged "joint ownership" of the democratic transition unleashed by the protests that toppled Hosni Mubarak last year. (AFP)