"The aid is primarily aimed at the Palestinian refugees who fled the camp seeking refuge in other camps and locations in Lebanon as well as other vulnerable people directly affected by the conflict, including Lebanese," the EU's executive arm said in a statement.

Lebanese soldiers fought fierce battles on Friday with Islamists holed up inside the Nahr al-Bared camp north of Tripoli, with witnesses reporting fires raging in a small area still controlled by the militants.

EU foreign policy chief Javier Solana warned last month that Al-Qaeda could extend its presence from Palestinian camps in Lebanon into Gaza.

The EU funds are being channelled through the Commission's Directorate General for Humanitarian Aid (ECHO) under the responsibility of Commissioner Louis Michel.

Michel said he hoped the fighting in and around Nahr el Bared would end very soon. "Too many people have been traumatised," he declared. "It is time to put the violence behind us, consolidate peace and rebuild the infrastructure.

More than 31,000 Palestinian refugees in the Nahr El Bared camp have fled the fighting initiated by the Fatah al Islam faction. People living around the camp have also been affected.

More than half of those displaced found a safe, although crowded, haven in the neighbouring refugee camp of Beddawi, almost doubling its population in the process, according to the Commission.

On the first day of the crisis, in May, the Commission committed an initial 500,000 euros in humanitarian aid to cover the most urgent needs.