"Zawiya is encircled by Gaddafi's forces, there are a lot of checkpoints. They are tightening their grip on the centre," a Reuters journalist said, adding government forces were manning checkpoints some two miles from the centre of town.
"Access to central Zawiya is completely blocked," she said.
Youssef Shagan, the rebel force spokesman in Zawiya said, earlier, "They entered Az Zawiya at six in the morning with heavy forces, hundreds of soldiers with tanks. Our people fought back ... We have won for now and civilians are gathering in the square,"
"We captured 3 APCs, two tanks and one pick-up after an hour and a half of fighting. A lot of civilians fled when the fighting started," he said, adding that there were government snipers in the town.
Earlier reports said Gaddafi's forces had reasserted broad control of the Mediterranean coastal town, 30 miles west of the capital Tripoli but had run into rebel resistance in a central square.
A rebel fighter in central Zawiya told Reuters by phone that Gaddafi's forces were re-grouping at the entrance of the town after being pushed back this morning.
"Gaddafi will never enter this city. He will never set foot here. The only way for him to enter the city is when we are all dead. He has to kill us all to control the city," said the rebel, who gave his name as Ibrahim.
He said there were casualties on both sides but could not give a precise number.
Al Jazeera carried similar reports about fighting in the town, 30 miles west of the capital Tripoli, and said tanks had fired on homes.
In eastern Libya, rebel fighters said they had gained further ground in a westward thrust against Gaddafi's forces, taking the town of Bin Jawad some 525 km east of Tripoli.
Earlier in the day further east, however, conflict broke out again in the oil port of Ras Lanuf, 660 km from Tripoli, when rebels fired on a swooping government army helicopter a day after they reported capturing the town, witnesses said.
Ras Lanuf was firmly in rebel control today and the frontline had moved west of the town.
Rebels said Gaddafi's forces bombed an arms depot yesterday at Rajma, on the outskirts of Libya's second city of Benghazi, which is now in rebel hands.
A two-week-old uprising against four decades of autocratic Gaddafi rule has left undisciplined but dedicated rebels generally dominant in eastern Libya and his government in the west. But the latest fighting suggested front lines were far from clear and could shift quickly.
Counter-attacks by Gaddafi loyalists this week suggest the flamboyant autocrat will not go quietly or quickly as leaders in neighbouring Egypt and Tunisia did in a tide of popular unrest rolling across the Middle East.
There was no sign of pro-Gaddafi soldiers in Ras Lanuf today although the government had denied the rebel claim yesterday to be in control of Ras Lanuf.
Just before the helicopter swooped, the town had been calm with the rebel flag waving over a major roundabout.
At a checkpoint at the entrance to the town today, there was a rebel checkpoint, manned by half a dozen soldiers. Asked if rebels were in charge of the whole town, one soldier replied: "Everything, 100 per cent, it is completely safe."
A little before the entrance of the town there was also rebel checkpoint near one oil installation, manned by up to a dozen rebels armed with light weapons.
Inside Ras Lanuf, the town was a scene of calm in the early morning. About 25 people were queuing for bread.
"It's not a normal situation, but you have to be prepared for this situation. I am very pleased, we all are. We are finished with Gaddafi," said Saleh Mohamed, 37, works as an administrator in an oil firm.
In diplomacy aimed at quelling upheaval that has jacked up oil prices, a group of mostly Latin American states in a leftist bloc behind Venezuelan President Hugo Chavez endorsed his plan yesterday for an international mediating mission on Libya.
But Chavez's chances looked slim for now since the rebels have ruled out talks unless they lead to Gaddafi's resignation or exile, outcomes he has categorically ruled out.
Disaffected Libyans see Chavez as too close to Gaddafi, whom the Venezuelan leader calls a friend. It was unclear whether the plan has gained any traction with other countries.
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