Pro-Gaddafi forces are mounting a fierce defence of Bani Walid, one of the four towns that remain loyal to the colonel.
Libyan fighters say the town contains more loyalists than expected and National Transitional Council troops pulled back to avoid casualties.
It is claimed that loyalists, mercenaries and snipers are launching grad rockets from private houses, making NATO intervention difficult.
Still rebels, continue to recruit new troops as more and more flood into Bani Walid.
There is also fierce fighting reported around Sirte, the hometown of Muammer Gaddafi.
The NTC claim that talks to end the standoff in the towns of Bani Walid, Jufra, Sabha and Sirte proved elusive and commanders say they had no choice but to attack after they came under fire.
In the capital Tripoli, 150 km from the frontline, there is hope that the fighting will soon come to an end and the country can start to rebuild following a civil war that has opened divisions, claimed lives and damaged infrastructure.