A naval landing craft arrived on the shores of Venezuela's Western Falcon state carrying troops and more than a dozen tanks.
The "invading" army then took over the large Paraguana Refining Complex, a key asset of the world's fifth largest crude oil exporter.
The "occupation" this week is part of a Venezuelan military exercise - Operation Patriot 2006 - to train troops and communities to repel foreign invaders. The Chavez Government is preparing citizens to fight a guerrilla war to repel a possible Iraq-style invasion by United States troops.
The Bush Administration insists the paranoia is nothing more than leftist sabre-rattling, but for Chavez supporters the threat is real.
Tanks began circulating through the streets, and units of mock invading soldiers launched smoke bombs to clear the way. But trained and organised residents resisted the assault by blocking roads with rusting cars and burning tyres.
Venezuela's Government has created community organisations called "Local Defence Councils" to provide support during a potential invasion by hiding weapons, relaying messages or sabotaging water and power services.
The mock attack involved nine warships, three combat planes and four helicopters - two of which are Russian-made models Chavez acquired after the US thwarted his attempts to acquire American technology.
Chavez, a former paratrooper turned populist politician, is locked in a heated war of words with Washington. The US State Department describes him as a threat to democracy in the region, and will no longer sell weapons or military equipment to Venezuela.
Despite US criticism, Chavez is expected to easily win re-election. Critics say Chavez is squandering record oil wealth on improvised social programmes and creating an artificial conflict with the US. But with oil prices surging and anti-American sentiment high, many Venezuelans see the invasion threat as a reality.
"If oil goes to US$100 ($162) per barrel," said one high ranking officer, "who knows? Anything could happen."
- REUTERS
Venezuela stages mock foreign invasion
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