Muammar Gaddafi's better armed and organised troops reversed the westward charge of Libyan rebels as world powers met in London on Tuesday to plot the country's future without the "brother leader".
British Prime Minister David Cameron, opening the London conference, accused government troops of "murderous attacks", while US Secretary of State Hillary Clinton said military strikes would continue until Gaddafi loyalists ceased violence.
The United States is scaling back to a "supporting role" to let Nato take full command from US forces on Wednesday, but air strikes by US, French and British planes remain key to smashing Gaddafi's armour and facilitating rebel advances.
It took five days of allied air strikes to pulverise Libyan government tanks around the town of Ajdabiyah before Gaddafi's troops fled and the rebels rushed in and began their 300-km (200-mile), two-day dash across the desert to within 80 km (50 miles) of the Gaddafi loyalist stronghold of Sirte.
But the rebel pick-up truck cavalcade was first ambushed, then outflanked by Gaddafi's troops. The advance stopped and government forces retook the small town of Nawfaliyah, 120 km (75 miles) east of Sirte.
"The Gaddafi guys hit us with Grads (rockets) and they came round our flanks," Ashraf Mohammed, a 28-year-old rebel wearing a bandolier of bullets, told a Reuters reporter at the front.
The sporadic thud of heavy weapons could be heard as dozens of civilian cars sped eastwards away from the fight.
One man stopped his car to berate the rebels.
"Get yourselves up there and stop posing for pictures," he shouted, but met little response.
Later, a hail of machinegun and rocket fire hit rebel positions. As the onslaught began, rebels leapt behind sand dunes to fire back but gave up after a few minutes, jumped into their pick-up trucks and sped off back down the road to the town of Bin Jawad. Shells landed near the road as they retreated.
Without air strikes it appears the rebels are not able to make advances or even hold ground. The battle around Sirte, Gaddafi's birthplace, will reveal if the rebel advance has reached its limit.
Reports that some Nawfaliyah residents had fought alongside government troops are an ominous sign for world powers hoping for a swift end to Gaddafi's 41-year rule.
Gaddafi accused Western powers of massacres of Libyan civilians in alliance with rebels he said were al-Qa'ida members.
"Stop your brutal and unjust attack on our country ... Hundreds of Libyans are being killed because of this bombardment. Massacres are being mercilessly committed against the Libyan people," he said in a letter to world leaders.
"We are a people united behind the leadership of the revolution, facing the terrorism of al-Qa'ida on the one hand and on the other hand terrorism by Nato, which now directly supports al-Qa'ida," Libya's official news agency quoted him as saying.
The rebels deny any al-Qa'ida links and on Tuesday promised free and fair elections if Gaddafi is forced from power.
More than 40 governments and international organisations met in London on Tuesday to set up a steering group, including Arab states, to provide political guidance for the response to the war and coordinate long-term support to Libya.
Both Britain and Italy suggested Gaddafi might be allowed to go into exile to bring a quick end to the six-week civil war, but the US ambassador to the United Nations Susan Rice said there was no evidence the Libyan leader was prepared to leave.
Clinton met the opposition Libyan National Council envoy Mahmoud Jebril before the London talks. A senior US official said the two could discuss releasing $33 billion in frozen Libyan assets to the opposition.
Clinton said coalition military strikes would continue until Gaddafi fully complies with UN demands to cease violence against civilians and pull forces out of occupied cities.
"All of us must continue to increase the pressure on and deepen the isolation of the Gaddafi regime through other means as well," Clinton told the London conference.
"This includes a unified front of political and diplomatic pressure that makes clear to Gaddafi that he must go."
US President Barack Obama once again ruled out sending ground troops to Libya or directly bringing about regime change by toppling Gaddafi.
"To be blunt, we went down that road in Iraq," Obama said in a televised address before the conference.
But US officials have not ruled out arming the rebels which they believe is sanctioned by UN Security Council Resolution 1973 which called for the protection of Libyan civilians from Gaddafi's forces. An Italian diplomatic source though said that would require a new UN resolution.
In western Libya, rebels and forces loyal to Gaddafi both claimed control over parts of Misrata, Libya's third city which has been besieged by government forces for more than a month.
Libyan state television said thousands of people were taking part in a march in support of Gaddafi in Misrata, which it said had been "cleansed of armed terrorist gangs." It was the third time the channel said Misrata had been recaptured from rebels.
A rebel spokesman said Gaddafi's forces launched another attempt to seize control of Misrata in the city
Government troops "tried an hour ago to get into the town through the eastern gate. The youths are trying to push them back. Fighting is still taking place now. Random bombardment is continuing," the spokesman, called Sami, told Reuters by telephone from the city. "Eight civilians were killed and several others wounded last night."
"The humanitarian situation is catastrophic. There is a shortage of food and medicine. The hospital is no longer able to deal with the situation," the rebel spokesman said.
"We call for urgent help to protect civilians and improve the humanitarian situation."