Libyan interim government forces trying to seize Muammar Gaddafi's remaining strongholds fell back after another chaotic attack on the desert town of Bani Walid, but renewed their battle for the deposed leader's birthplace of Sirte.

National Transitional Council forces have met stiff resistance in Gaddafi's last bastions, which they must capture before the NTC can declare Libya "liberated" and begin work on a constitution before elections.

Since Tripoli fell to rebels on 23 August, rumours have swirled about whether Gaddafi is in Bani Walid, Sirte, the southern desert town of Sabha or elsewhere.

His spokesman told Reuters yesterday that the ousted leader was still in Libya, directing resistance.

Anti-Gaddafi fighters have tried several times to storm Bani Walid in recent days.

Their latest attempt ended today with a retreat in disorder under heavy rocket fire from the town's defenders.

NTC fighters said they had planned for tanks and pickup trucks with anti-aircraft guns and rocket launchers to lead the attack, but foot soldiers had piled in first without orders.

NTC forces also attacked Sirte, firing rockets from the city's southern entrance and trading fire with Gaddafi loyalists holed up in a conference centre.

Gaddafi's spokesman, Moussa Ibrahim, said NATO air raids had killed 354 people in Sirte on Friday night.

A NATO spokesman in Naples said previous such reports had been false.

British warplanes, operating under NATO's UN mandate, bombed a Gaddafi ammunition dump west of Sirte, after destroying an armoured troop carrier and two armoured pickup trucks in the Sirte area the day before, a British military spokesman said.