National Transitional Council forces on Saturday swept further into Sirte, a remaining stronghold of Moamer Gaddafi, before retreating under heavy artillery fire after two hours of clashes.
The fighting focused on a roundabout at September 1 Street, the town's main artery into the south from the southeast.
"The situation at the roundabout is pitiful. There is no central command, we are retreating to regroup and re-enter again from three fronts," said Al-Dhahira Brigade commander Saleb Abu Shaala.
Gaddafi forces in Sirte, the ousted leader's hometown, have put up stubborn resistance against at least 6,000 former rebel fighters how massed in and around the town.
Abu Shaala said the clashes erupted at about 10.30 am (0830 GMT) and that Gaddafi's forces used heavy artillery and rockets against them.
"We hit back with Grad rockets," he said.
Abdel Nasser al-Sheikh, of the Misrata Military Council, charged that Gaddafi troops "are firing from the Bin Hamal mosque. We cannot attack this place."
On the outskirts of Sirte, a medic with his face blown open was one of two people who had been killed and brought in from the front lines.
"He was a civilian working in the ambulances," Dr Marwan al-Mubarak told AFP, adding that the second man was killed by a sniper bullet to the heart.
Colleagues of the ambulanceman broke into tears as his body was brought in, and repeatedly shouted "Allahu akbar" ("God is greatest") as they continued to treat other casualties, most of them seriously wounded, an AFP reporter said.
One man had his chest and arm punctured by rocket shrapnel, while another had been shot in the neck and one in the hand.
A fourth wounded man with bloodied legs also arrived after being evacuated in a police car from fighting at the roundabout.
Commander Salem Jeha, a member of Misrata Military Council, told AFP earlier by telephone: "We are now concentrated in a handful of buildings in the city and on the outskirts including Wadi Abu Hadi where Gaddafi's forces are concentrated."
Sirte airport came under complete NTC control late on Friday, he said.
Earlier on Saturday at the Gate 30 checkpoint 30 kilometres (18 miles) west of Sirte, truckloads of ammunition could be seen heading towards the front, along with more pick-ups bearing fighters and anti-aircraft guns.
Jeha said there were some 1,200 NTC armed vehicles and thousands of fighters, mostly from Misrata, in the Sirte area.
"There may be houses and pockets of resistance, but they will not be able to overcome the rebels' massive forces," he said, adding that he had received reports that half of the city's civilians had fled.
The attacking fighters were trying to prevent civilian loss of life and were not seeking revenge: "We are not using heavy weapons except to protect our rebels when they are targeted."
Speaking before reports of the September 1 Street pull-back, Lieutenant Abdel Wahid al-Aguri, a former regular officer, said: "We are now in control of the highway and the southern part of the city."
He added that the national army would continue to back and protect volunteer fighter brigades leading the Sirte offensive, but admitted there were some coordination issues between different forces on the battlefield.
"This is a weird battle, because in the traditional army there are clear orders whereas here we cannot coordinate closely," he acknowledged.
A pick-up truck arrived at the Gate 30 checkpoint bearing three prisoners whom the NTC forces said were Gaddafi snipers, an AFP correspondent reported.
One prisoner, an old man, showed signs of having been beaten, with blood streaming from his temple.
The youngest prisoner managed to blurt out to AFP that he was 19 as an angry crowd of fighters ringed the vehicle and tried to beat the three. Others held them back, however, shouting that there were media present.
"Sahafa, sahafa (journalists, journalists)" they yelled.