The loss of the town robs the junta, already grappling with an economy in free fall, of vital earnings from border trade while strengthening rebel groups such as the Karen National Union (KNU) that led the assault on Myawaddy, analysts say.
"I am afraid of air strikes," said Moe Moe Thet San, a Myawaddy resident who crossed to Thailand with her son, who is about five years old.
"They caused very loud noises that shook my house," added the 39-year-old mother, one of those gathered at the single fully-operational border crossing at Mae Sot, who said the sound of bombs drove them to leave home, fearing for their safety.
"That's why I escaped here. They can't bomb Thailand," she added.
Thai Foreign Minister Parnpree Bahiddha-Nukara is set to visit Mae Sot, just across the Moei River from Myawaddy, on Friday to assess matters after Myanmar's embattled junta lost yet more territory in the latest round of fighting.
Junta spokesperson Zaw Min Tun told Myanmar media some of its troops had surrendered because they were accompanied by their families and talks with Thailand for their return were in progress.
He did not respond to a telephone call from Reuters to seek comment.
Myanmar has been in turmoil since 2021, when the powerful military deposed an elected civilian government, triggering widespread protests it sought to crush with brutal force.
Simmering anger against the junta turned into a nationwide armed resistance movement that is now increasingly operating in coordination with established ethnic rebel groups to challenge the military across large parts of the Southeast Asian nation.
About 200 Myanmar military personnel withdrew on Thursday to a bridge linking to Mae Sot after the KNU said it had taken control of Myawaddy.
But the Myanmar military may still seek to mount a counter-attack, supported by its air force, to regain the town, said Dulyapak Preecharush, an associate professor of Southeast Asian Studies at Bangkok's Thammasat University.
"So there is a question about possible intensification of fighting in the coming days," he told Reuters.
NUMBERS DOUBLE
As fighting in Myanmar intensified, the numbers crossing to Mae Sot from Myawaddy doubled this week to about 4,000 a day.
On Thursday, Thai Prime Minister Srettha Thavisin said the fighting in Myanmar should not spill into his country's airspace.
In an interview with Reuters last week, Srettha said the Myanmar junta was "losing strength", as he pushes to open talks with the regime.
Thailand, which says it is keeping neutral in the Myanmar conflict and can accept up to 100,000 people displaced by it, has pursued engagement, including aid deliveries, with its neighbour since Srettha came to power last August.
Yet the junta could find itself stretched further after the Arakan Army rebel group warned it would renew an offensive in Myanmar's western state of Rakhine.
Arakan Army chief Twan Mrat Naing warned residents of the Rakhine cities of Sittwe and Kyauk Phyu to relocate ahead of "a decisive battle", the group said in a statement.
One of Myanmar's most powerful ethnic armed forces, the Arakan Army was part of Operation 1027, a major assault by three rebel groups last October that seized significant territory from the junta.
