Heavily armed rebels said they drove forces loyal to Muammar Gaddafi from the oil town of Ras Lanuf on Friday, but Libya's deputy foreign minister said it remained firmly in government hands.
The rebels had attacked a military base on the outskirts of Ras Lanuf, a major oil port on the Mediterranean Sea, which has a refinery, pipelines and a terminal, and the army responded with artillery fire and helicopters firing machineguns.
"We have taken Ras Lanuf 100%, Gaddafi's forces have all left," rebel soldier Hafez Ihrahim told Reuters from inside the town.
Rajab Zawawei, another rebel soldier, said by phone from Ras Lanuf airport: "We have taken Ras Lanuf 100 percent. We took it an hour ago."
Deputy foreign minister Khaled Kaim denied this. "The government controls it ... In Ras Lanuf, everything is calm."
Ras Lanuf lies about 660 km (410 miles) east of Tripoli.
Flashes and thuds resounded from the battlefield, along with wailing sirens and puffs of smoke in the air. Rebels with heavy artillery streamed to the front line, backed by anti-aircraft guns mounted on trucks and anti-tank guns.
Earlier, rebels fired their rifles at helicopters overhead which used machineguns on the rebel positions. A helicopter launched a missile which failed to explode.
As the battle raged, fighters chanted: "Where is Obama! We want a no-fly zone!", referring to the imposition of a no-fly zone which is being considered by the administration of U.S. President Barack Obama among other options for Libya.
Hundreds of people gathered at the hospital in the eastern town of Ajdabiyeh as ambulances pulled in with wounded rebels from fighting in Ras Lanuf. "Seven wounded during the fighting in Ras Lanuf have arrived so far. The final report will come later," said Ibrahim Saeed, assistant director at the hospital.
Two people had died, hospital sources said.
Libyan warplanes bombed an arms depot on the outskirts of Libya's second city of Benghazi in the east of the country, Mustafa Gheriani, a spokesman for the rebel February 17th Coalition, told Reuters.
"A lot of people have been killed. There are many people in the hospital. No one can approach, It's still very dangerous," said a resident who would only identify himself as Saleh.
Al Jazeera said 17 were killed in the attack by Libyan forces on a weapons store near Benghazi.
As rebel forces engaged the army at Ras Lanuf, head of the rebel National Libyan Council Mustafa Abdel Jalil told followers in the eastern town of Al Bayda:
"We are people who fight, we don't surrender. Victory or death. We will not stop 'till we liberate all this country ... The time of hypocrisy is over."
The crowd chanted: "Libya is free and Gaddafi must go."
"OLD REGIME IS OVER"
Abdel Jalil, an ex-justice minister, told cheering crowds: "There could be members of the old regime here among us. Your enemy can still put his people among you. Don't listen to them and let them ruin our revolution."
Asked by Reuters what the council would do next, he said: "We will send a message to the West and to all peoples that this is going to be a democratic country."
On what he wanted from the international community, Abdel Jalil said: "To help protect the Libyan people from Gaddafi's assault and help put an end to it."
He also said he wanted a no-fly zone.
The red, black and green flag, adopted by the rebels, waved from buildings and men carrying rifles were posted on roofs and next to the crowd, who were peaceful, enthusiastic and defiant.
Earlier, defiant rebels had vowed to march on Tripoli.
"We're going to take it all, Ras Lanuf, Tripoli," Magdi Mohammed, an army defector, fingering the pin of a grenade, told Reuters at a rebel checkpoint on the road to Ras Lanuf.
At the western gate of Ajdabiyah, dozens of pick- up trucks loaded with men armed with rifles, rocket launchers and machineguns streamed through to reinforce Ras Lanuf.
They shouted "Allahu Akbar" and shot into the air. Those at the gate clapped and cheered as they passed. "The People's Army" and "Revolution of February 17" were spray painted on the sides of many trucks in Arabic.
"INTO THE DESERT"
Rebel units on their way to Ras Lanuf took to the desert to get away from the coastal road after the intervention of their commander who said staying on the strategic route was dangerous.
"We've fanned out in the desert because this dog Gaddafi has desert cars and fighter planes. It's harder for them to see us in the desert," said Adel Al Imami, a former officer with Gaddafi's brigades, now with the Feb. 17 Martyrs Brigade.
Youths randomly fired guns in the air, and tore around in four-wheel-drive trucks, spray painted with slogans or the word "ARMY". Many had grenades and combat knives strapped to them.
Earlier on Friday, a Libyan warplane bombed just beyond the walls of a military base used to store huge amounts of ammunition and now held by rebels in the eastern town of Ajdabiyah but did not hit it.
Elsewhere in Libya, at the sermon in the main mosque at the oil town of Brega, Friday prayers focused on national unity and refuted tribalism. Worshippers said they rejected a divided nation comprising a free east and a Gaddafi west.
At the entrance to the courthouse in Libya's second city of Benghazi, guards placed at the entrance a rug carrying the image of Gaddafi as a uniformed young man. It was rainy and people used the mat to wipe their muddy feet.