Alindao town was taken by rebels of the Seleka alliance, who now control 11 cities and towns, according to residents of a nearby community.
"In the early morning hours the attackers burst into Alindao without meeting any resistance from the Central African armed forces," said Jean Balipio, speaking by telephone from the neighboring town of Bangassou.
Alindao is not on the path to Bangui, the capital of 700,000 which is heavily fortified by Chadian troops and other forces sent from neighboring countries. Alindao is located about 75 miles (120 kilometers) from Bambari, the third largest city which is already under rebel control.
The insurgents have taken 11 towns and cities within a month. They had previously said they would halt their advances pending talks with President Francois Bozize's government, which are set to begin in Gabon on Tuesday. The new move by rebels on Saturday casts doubt on the possible success of the talks. Already the rebels said they are seeking Bozize's departure but the president said he does not intend to leave office before his term ends in 2016.
On Friday, the United Nations Security Council urged the rebels to withdraw from the towns they hold and take part in the negotiations in Libreville, Gabon "without preconditions and in good faith."
Pakistan's U.N. Ambassador Masood Khan, the current council president who read the press statement, was asked whether the talks would definitely take place given uncertainty about participation of all the rebels in the alliance and other groups.
"Right now preparations are being made and we're hoping the talks will take place—and all parties are being urged in that direction," Khan said. "The talks are important to reduce tension and de-escalate the situation and look towards diplomatic solutions."
Seleka, which means alliance in the local Sango language, is made up of four separate groups which have previously fought one another. Bozize has offered to form a government of national unity but the rebels have questioned his sincerity and demanded that he relinquish power.
The rebels also want the Bozize government to respect previous peace accords providing for the disarmament, demobilization and reintegration of former rebels into society.
Central African Republic is a desperately poor, landlocked nation that has suffered numerous rebellions since independence from France in 1960. Bozize himself came to power in 2003 through a rebellion that was backed by Chadian forces. He has since won two elections.
Despite the nation's wealth of gold, diamonds, timber and uranium, the government remains perpetually cash-strapped and many of the 5 million people depend upon subsistence agriculture.
Associated Press writers Krista Larson in Bangui, Central African Republic, and Edith M. Lederer at the United Nations contributed to this report.