Libyan fighters trying to capture one of Muammar Gaddafi's last strongholds have battled into the desert town of Bani Walid against stiff resistance from Gaddafi loyalists.
But after advancing to within 500 metres of the town centre, some forces of Libya's Transitional National Council (NTC) pulled back.
NATO warplanes then carried out at least five strikes on Gaddafi positions around the town.
"Field commanders have told us to retreat because NATO will be bombing soon," fighter Abdul Mulla Mohamed said.
A NATO spokesman in Brussels earlier denied reports that it had warned NTC fighters to withdraw ahead of air strikes, saying it had no contacts with the NTC.
Artillery explosions were heard across the town's northern outskirts and a rocket fired by Gaddafi loyalists landed in the hills.
"We are not far from liberating Bani Walid," Daw Saleheen, a representative of the NTC's military council, said earlier.
"We urge Gaddafi fighters to lay down their weapons. You can go to any house and will be safe. It is not too late."
Two NTC commanders were killed and two wounded in the fighting. Doctors said two Gaddafi soldiers and one NTC fighter were killed yesterday.
Abdullah Kanshil, an NTC official, said four or five civilians had died in overnight fighting.
Mr Kanshil said about 1,000 Gaddafi soldiers were defending the town - far more than the 150 previously estimated.
"They are launching Grad rockets from private houses so NATO (warplanes) cannot do anything about it," he said.
Heavy fighting erupted around Bani Walid and the coastal city of Sirte, Gaddafi's birthplace, yesterday, a day ahead of a deadline for a negotiated surrender set by the NTC.
NTC officials said the truce was effectively over, paving the way for what could prove the final battles of a civil war that evolved from February's popular uprising against Gaddafi.
Now that Gaddafi's 42-year rule has ended, diplomats said Britain plans to submit a draft resolution to the UN Security Council early next week to start easing sanctions against Libya and establish a modest UN mission in the country.
Elsewhere, the head of the International Monetary Fund Christine Lagarde has said that the IMF recognises the National Transitional Council as the official government of Libya.
