Forces loyal to Moamar Gaddafi have seized the eastern town of Brega, the first indication of a concerted fight-back by the Libyan leader in the rebel-controlled east.
Anti-Gaddafi forces have been firmly in charge of eastern Libya up to Brega, and some areas beyond, since shortly after anti-government protests erupted in the middle of last month.
Brega, about 200 kilometres south of the opposition stronghold of Benghazi, is a major oil terminal and a major strategic asset for whoever controls it.
Rebel officers confirmed the town had been recaptured, while Al Jazeera reported warplanes bombed Ajdabiyah, a town in the same area where rebels control a military base and arms dump.
The battle is still going on. People in Benghazi are nervous and are preparing for what may be an attack on the city as Mr Gaddafi continues to reject calls to stand down and his forces try to regain areas held by the opposition.
There are reports that his troops have retaken Gharyan and Sabratha in the country's northwest
But on Tuesday rebel forces fought off elite units who tried to retake the town of Zawiya near Tripoli.
The United States says Libya could sink into civil war unless Mr Gaddafi ends his four-decade rule amid fears the uprising, the bloodiest yet against long-serving rulers in the Middle East, could cause a humanitarian crisis.
Western powers continue to argue over imposing a proposed no-fly zone over Libya, as the US moves two warships through the Suez Canal on their way to waters off Libya.
Two amphibious assault ships, USS Kearsarge, which can carry 2,000 Marines, and USS Ponce, entered the Suez Canal en route to the Mediterranean. The destroyer USS Barry moved through the Suez Canal on Monday.
Arab League foreign ministers are due to meet on Wednesday at an extraordinary session in Cairo and are expected to reinforce their condemnation of Mr Gaddafi.
Some delegates want the meeting to underline the League's unwillingness to see foreign intervention in Libya.
The repositioning of US ships and aircraft closer to Libya is widely seen as a symbolic show of force since neither the US nor its NATO allies have shown any appetite for direct military intervention in the turmoil that has seen Mr Gaddafi lose control of large swaths of his country.
Refugee emergency
Libya is no longer only an internal crisis but also a refugee emergency. At least 140,000 people have fled and thousands more are trying to get out.
Italy said it was sending a humanitarian mission to Tunisia to provide food and medical aid to as many as 10,000 people who had fled violence in Libya on its eastern border.
About 70,000 people have passed through the Ras Jdir border post in the past two weeks, and many more of the hundreds of thousands of foreign workers in Libya are expected to follow.
The UN refugee agency said the situation on the Libya-Tunisia border was reaching crisis point as desperate expatriate workers pour across, fearful of a bloody rearguard action by diehard regime elements.
Anger at authoritarian Arab regimes in the Middle East and North Africa raged from Algeria to Yemen and has spread to the previously unaffected Gulf states of Kuwait and Oman, unnerving financial markets around the world.
The UN General Assembly has also taken the unprecedented step of suspending Libya from the United Nations Human Rights Council.
The resolution, passed by consensus by the entire UN membership, accuses Libya of committing gross and systematic violations of human rights.
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