By Anna Yukhananov

KINSHASA (Reuters) - The World Bank pledged $1 billion on Wednesday to fund development in central Africa's Great Lakes region in return for peace, but fresh fighting in eastern Congo underscored the challenges facing the area.

World Bank President Jim Yong Kim unveiled the proposed aid for one of Africa's most conflict-ridden regions on the first day of a trip with U.N. chief Ban Ki-moon to Democratic Republic of Congo, Rwanda and Uganda.

The tour coincided with further clashes between Congo's army and fighters from the M23 rebel group near the eastern city of Goma on the border with Rwanda, where at least 20 people have been killed this week.

Artillery exchanges erupted for a third straight day on Wednesday, killing at least one child and injuring several other civilians as shells fell on a heavily populated neighborhood of Goma and around nearby camps for war displaced civilians.

Kim and Ban are due to travel to the city on Thursday.

The U.N. secretary general told Reuters on Tuesday that the $1 billion to help finance health and education services, hydro-electric projects and cross-border trade was contingent on countries honoring a peace deal brokered by the United Nations.

The aid package is part of efforts to link immediate security with lasting political and economic solutions, giving countries an incentive to stick with peace.

"We believe this can be a major contributor to a lasting peace in the Great Lakes region," Ban said in a statement on Wednesday. "This funding will help revitalize economic development, create jobs, and improve the lives of people who have suffered for far too long."

The biggest chunk of the aid - $340 million - will go towards an 80-megawatt hydroelectric project in Rusumo Falls, providing electricity to Burundi, Rwanda and Tanzania to ease chronic black-outs.

PEACE DIVIDEND

African leaders signed a deal in February seeking to end two decades of conflict in eastern Democratic Republic of Congo.

Among the 11 signatories were Rwanda and Uganda, both accused by U.N. experts of supporting the M23 rebels who had hived off a fiefdom in Congo's North Kivu province. The two countries deny this.

"A peace agreement must deliver a peace dividend. That is why Dr. Jim Kim and I are making this visit," Ban said in a statement. It is the first joint visit to Africa by the heads of the organizations, the World Bank said.

This week's fighting was the first since November when M23 troops routed Congo's army and briefly seized Goma, despite the presence of thousands of U.N. peacekeepers.

On Wednesday, a two-year-old girl was killed and three other children were wounded when a shell fell in Goma's densely populated Ndosho neighborhood, rights campaigner Human Rights Watch (HRW) said. A hospital official in Ndosho said at least six people were admitted with injuries, some of them severe.

Another two women and four children were wounded when three shells landed near camps for war-displaced civilians on the western outskirts of the city late on Tuesday, HRW said.

"The situation appears to be deteriorating, with civilians now caught up in the fighting," Ida Sawyer, HRW's Congo researcher, told Reuters.

Peace talks between M23 and Congo's government in Kampala, the capital of neighboring Uganda, have stalled. M23 is mainly made up of the members of a previous Tutsi-dominated rebellion which integrated into the army after a 2009 peace deal.

But they deserted en masse last year and have stepped up training in their strongholds in preparation for the deployment of a U.N. Intervention Brigade with a mandate to neutralize armed groups across the region.

(Additional reporting by Chrispin Mvano in Goma; Writing by Pascal Fletcher and Joe Bavier; Editing by Ed Cropley)