An government spokesman told the BBC it was not a military defeat but a necessary step to protect civilians.
But a Russian military spokesman said Georgia had not withdrawn its forces and the situation remained tense.
Russian PM Vladimir Putin has suggested it is unlikely that South Ossetia will re-integrate with the rest of Georgia.
Meanwhile, Russian warships are being deployed to impose a naval blockade on Georgian ports on the Black Sea coast to prevent arms and military shipments, Russian media reports say.
Georgia says an additional 10,000 Russian soldiers have crossed into South Ossetia and Abkhazia, another breakaway region.
The BBC's Richard Galpin, who is on the crossing point between Georgia and South Ossetia, says he has heard artillery fire between Georgian and Russian troops in the area.
Local residents fleeing the area told him there was continued fighting on the outskirts of the Tskhinvali, although the city itself was said to be relatively quiet with Russian forces in full control.
Earlier, Georgian officials said Russian jets had bombed a military airfield close to the Georgian capital, Tbilisi.
Three bombs had been dropped on the airfield, where there is a factory producing Sukhoi Su-25 fighter jets, they said.
There was no independent confirmation of the attack, although the BBC's Gabriel Gatehouse, who was in the city at the time, said he heard a loud explosion.
The current fighting began three days ago when Georgian forces launched a surprise attack to regain control of South Ossetia, which has had de facto independence since the end of a civil war in 1992.
The move followed days of exchanges of heavy fire with the Russian-backed separatists. In response to the Georgian crackdown, Moscow sent armoured units across the border frontier.
On Saturday, Georgian President Mikhail Saakashvili called for an immediate ceasefire after Russian planes carried out air strikes on the Georgian town of Gori, not far from South Ossetia. Scores of civilians were reported killed.
The Georgian parliament approved a presidential decree declaring a "state of war" for 15 days.
In the absence of independent verification, there are conflicting figures about the casualties suffered on both sides but the numbers appeared to rise sharply on Saturday.
Based on Russian and South Ossetian estimates, the death toll on the South Ossetian side was at least 1,500, mostly civilians. Georgian casualty figures ranged from 82 dead, including 37 civilians, to a figure of about 130 dead.
Thousands of people are known to have fled into the neighbouring Russian region of North Ossetia and other parts of Georgia.
The UN High Commissioner for Refugees, Antonio Guterres, called for civilians trapped in conflict areas to be granted safe passage out.
Abkhazia concerns
Speaking to the BBC, Georgian interior ministry spokesman Shota Utiashvili said Georgian troops had pulled back to positions at or south of those held before 6 August, when the hostilities began.
From there, he said, they were engaged in fighting Russian forces, who are still understood to be inside South Ossetia and in full control of the regional capital.
Mr Utiashvili told the BBC that the withdrawal was necessary because of the mass civilian and military casualties both within Georgia and South Ossetia.
He said that Georgia was now facing a "humanitarian catastrophe", adding that 100 soldiers Georgian soldiers had been killed, and many more wounded.
A spokesman for the Russian peacekeepers said Georgia had not withdrawn its forces from South Ossetia and insists Georgia had to do that before any kind of ceasefire could come into effect.
A Russian commander in the conflict zone, Maj-Gen Marat Kulakhmetov, said the situation remained tense, and there was no negotiation process. Both sides were preparing for further military action, he suggested.
Earlier, Georgia said Russia had bought an additional 10,000 troops across Georgia's frontiers - 6,000 by land into South Ossetia and 4,000 by sea into the breakaway republic of Abkhazia.
The UN's Assistant Secretary-General for Peacekeeping, Edmond Mulet, said there were indications pro-Russian Abkhaz separatists were preparing to launch an offensive against Georgian forces in the Tbilisi-controlled upper Kodori gorge.
"At this point we are particularly concerned that the conflict appears to be spreading beyond South Ossetia into Abkhazia," he said.
On Saturday, Russian Prime Minister Vladimir Putin accused Georgia of seeking "bloody adventures" and trying to drag other countries into the conflict.
In an outspoken attack, he referred directly to Georgia's aspirations to join Nato, a move which Moscow strongly opposes.
Speaking in the city of Vladikavkaz, just north of the South Ossetian border, Mr Putin described the actions of Georgian soldiers as genocide against the South Ossetian people and defended Moscow's military action to intervene directly.
He said the territorial integrity of Georgia had "suffered a fatal blow".
Redrawing the map
Meanwhile, a joint delegation of the US, EU and the Organisation of Security and Co-operation in Europe is heading to Georgia in the hope of brokering a truce.
It comes as a third emergency session of the UN Security Council ended without an agreement on the wording of a statement calling for a ceasefire.
But emissaries from the US and Europe who are Nato members may not be seen as honest brokers by the Kremlin when it comes to Georgia, the BBC's diplomatic correspondent Bridget Kendall says.
The danger now is that Russia will not only use this crisis to demonstrate its military power in the region, but argue it is time to redraw the map, she adds.
Moscow has said there can be no "consultations" with Georgia unless Georgian forces withdraw to the positions they held outside South Ossetia before Thursday.
SOURCE: http://news.bbc.co.uk/2/hi/europe/7552012.stm
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