68-year-old Muammar Gaddafi's forces claimed that they had recaptured Zawiyah, 50 km west of the capital Tripoli, after an intense fighting. However, the rebels rejected the claim.
Witnesses were quoted as saying by media reports that Zawiyah was now under the control of forces loyal to Gaddafi, who has been in power for 41 years.
A resident who fled the city was quoted as saying by Al-Jazeera that "there was no one in the streets, the town is completely deserted, and there are snipers on the roofs."
Local residents said the city had been under sustained attack from pro-Gaddafi forces, aided by tanks and war planes, amid reports of intense fighting in another town Ras Lanuf, where an oil installation had gone up in flames.
Al-Jazeera said a steady volley of mortar and rocket fire covered the sky with dark smoke in Ras Lanuf. "Pro-Gaddafi forces unleash a savage counter-offensive against the town of Ras Lanuf." Fresh air strikes and shelling were also reported behind rebel lines in Ras Lanuf.
The fighting raged as rebels piled up pressure on the international community to impose a no-fly zone over Libya.
"It (imposition of a no-fly zone) has to be immediate action," Mustafa Abdul-Jalil, the head of the interim government in eastern Benghazi city, told CNN.
"The longer the situation carries on, the more blood is shed. That's the message that we want to send to the international community. They have to live up to their responsibility with regards to this," he was quoted as saying.
Abdul-Jalil, the ex-Justice Minister, was among those who broke with the regime after the uprising against Gaddafi's 41-year rule began on Feb 15. He now leads the opposition's National Transitional Council, a 31-member group representing most regions in Libya.
The Libyan government has offered a reward of USD 400,000 for the capture of Abdul-Jalil. France has become the first country to recognise Abdul-Jalil's national council and will send an envoy to Benghazi, media reports said.
NATO spy planes have mounted a 24-hour air space surveillance over Libya, as British Defence Secretary Liam Fox hinted that a no-fly zone could be enforced without wiping the North African nation's air defences.