Speight's threat came after a burst of automatic gunfire shattered the morning calm around Fiji's parliament complex, where the rebels are holding the hostages, including elected Prime Minister Mahendra Chaudhry.
The army, which took control of the Pacific island nation last week and has set up roadblocks around parliament, said a soldier fired one warning shot over the heads of four rebels who were breaking into a house near parliament.
The shot was returned by at least two bursts of automatic weapons fire from within the compound, witnesses said.
No one was reported injured in the latest shooting in the standoff that began when Speight and six masked gunmen stormed parliament and seized government leaders May 19.
"If they (the military) continue with that type of approach, it is going to attract a not too pleasant backlash," Speight said.
Speight and his rebels come from Fiji's indigenous majority; 44 percent of the nation's population are ethnic Indian.
The rebels want Chaudhry, Fiji's first prime minister from the Indian minority, removed from power and Fijians of Indian ancestry barred from leadership of this nation 2,250 miles northeast of Sydney, Australia.
Also Wednesday, a funeral was held for a policeman killed last week in a gun battle between rebels and soldiers. The dead officer is the only victim of the coup attempt so far.
A group of tribal leaders said Wednesday that Fiji's influential chiefs should be called upon to resolve the crisis.
"The solution is coming out loud and clear that the army must hand the negotiations back to the Great Council of Chiefs," said Ratu Osea Gavidi, one of a group of western Fiji chiefs that met to discuss the hostage standoff.
The Great Council of Chiefs holds little political power but commands considerable respect among indigenous Fijians. A solution brokered by the chiefs would likely be accepted by a majority of Fijians.
Talks between Speight and the army broke down Saturday after military leader Commodore Frank Bainimarama said he could accede to no more of Speight's demands. He already agreed to scrap the 1997 constitution and oust Fiji's president.
By MIKE CORDER