Libyan forces loyal to leader Muammar Gadafy are using tanks and aircraft to bombard the town of Zawiyah near the capital but rebels still control the central square.
Witnesses said many buildings, including mosques, had been destroyed, and rebel forces had been calling on residents over loud hailers to help defend their positions in the centre of Zawiyah, a town about 50 km west of Tripoli.
"Fighting is still going on now. Gaddafi's forces are using tanks. There are also sporadic air strikes. The situation here is very bad," a resident told Reuters.
"Many buildings have been destroyed including mosques. About 40 to 50 tanks are taking part in the bombardment...But they could not reach the centre of the town which is still in the control of the revolutionaries," he said.
Zawiyah, a town of about 200,000, has been the focus of heavy fighting for days but the rebels, pinned back to an area in the centre they have renamed "Martyrs' Square", have been able to hold on.
The town is one of only two big population centres still defying Col Gadafy's rule outside the main rebel stronghold in the east of Libya.
Earlier, Libya's rebel leadership said it would not seek to bring Col Gadafy to justice if he steps down within 72 hours.
Opponents of Col Gadafy said they had rejected an offer to discuss his exit but the Libyan government has denied holding talks with the rebel group.
Al Arabiya television did not give details or a source of its initial report but it quoted a Libyan foreign ministry spokesman as saying the accusations of the Libyan National Council, an interim body set up by rebels, did not deserve a response.
Arab foreign ministers will meet on Friday in Cairo to discuss the crisis, it was confirmed. "Foreign ministers will meet at 3pm (13.00 GMT) at the Arab League to assess the current situation in Libya," a league official said.
Two Arab papers and al Jazeera television said Col Gadafy was looking for a pact allowing him to step down, but there was no official confirmation of the reports. In public he has vowed to fight on and never leave Libya.
One of Col Gadafy's sons, Saadi, said in an interview with Al Arabiya his father had not yet thrown his army into full battle against the rebels, saving it to shield Libya against foreign attack and to protect "sensitive sites".
"The tribes are all armed, there are forces from the Libyan army and the eastern region is armed. The situation is not like Tunisia or Egypt," said Saadi.
Tonight, US secretary of state Hillary Clinton said she wanted to see international support for a no-fly zone over Libya.
"I think it's very important that this not be a US-led effort because this comes from the people of Libya themselves," she said, adding that it was important the UN make the decision on what to do about Libya, not the US.
Britain and France have spearheaded a drive at the UN for a no-fly zone to be established.
The White House pushed back against rising pressure from some US lawmakers for direct intervention in Libya, saying it first wanted to figure out what military options could achieve in this oil-producing desert state which is wracked by conflict.
British foreign secretary William Hague said London was working with its partners "on elements of a resolution on a no-fly zone, making clear the need for regional support, a clear trigger for such a resolution and an appropriate legal basis".
Western allies differ over how a no-fly zone might be implemented. The United States has said it would involve a large-scale military operation, including strikes on Libyan air defences, but some military analysts have said it could be limited to preventing flights in Libyan airspace, without a big preliminary campaign.
Russia, a permanent member of the UN Security Council with veto powers, said it opposed foreign military intervention.
Nato secretary general Anders Fogh Rasmussen stressed the need for UN authorisation. "I can't imagine the international community and the United Nations would stand idly by if Gadafy and his regime continue to attack their own people," he said.
US president Barack Obama said he wanted to "send a very clear message to the Libyan people that we will stand with them in the face of unwarranted violence and the continuing suppression of democratic ideals".
The Libyan government says it is fighting against al-Qaeda terrorists and maintains its security forces have targeted only armed individuals attacking state institutions and depots.
Reuters