The fighting raged after negotiators failed to work out a deal to surrender the city of Bani Walid, a hardcore Gadhafi stronghold southeast of Tripoli. Fighters believe key members of the ousted Libyan leader's regime -- including two of Gadhafi's sons -- may be hiding.
Positioned on the outskirts of the city, Grad rockets and bullets targeted the advancing fighters, some of whom retreated. Others worked to position themselves in advantageous locations.
Planes were heard overhead and fighters assumed they were NATO jets because no other aircraft has been allowed in the no-fly zone established by international powers.
The National Transitional Council, Libya's new leadership, said it wanted to negotiate the surrender to prevent further bloodshed and destruction, though critics believe it would give Gadhafi's fighters time to entrench themselves within the town.
Opposition forces claim Gadhafi loyalists fired on them Friday, hours ahead of a Saturday deadline to lay down their arms.
"The deadline expired yesterday when they fired at our forces with Grad rockets," NTC chief negotiator Abdullah Kenshil told CNN.
Kenshil said he expects opposition forces to take the town soon but acknowledged the tough resistance by snipers positioned in houses and loyalist forces firing artillery and rockets.
Opposition forces have been staging outside the town for nearly two weeks, surrounding it on three sides, while negotiations were under way.
Shortly before the Saturday deadline expired, NTC spokesman Shamsuddin Ben Ali said absent a resolution "it's up to military planners to decide how to move forward."
Sticking points in the negotiation included the demand by Gadhafi loyalists for opposition fighters to enter their communities unarmed, and to refrain from searching houses, Ben Ali said.
The loyalists also asked for blanket pardons, but the NTC wanted to prosecute loyalists with blood on their hands, Ben Ali said.
Bani Walid is one of three major towns in Libya that remain loyal to Gadhafi. The other towns are Sirte, on the Mediterranean coast, and Sabha, in the southwest of the country.
Opposition forces don't know how many Gadhafi loyalists are in Bani Walid, though they believe they are heavily armed with machine guns and rockets, said Abdulrahman Busin, an NTC spokesman.
The NTC has previously said it had confirmed reports that two of Gadhafi's sons -- Saif al-Islam and Mutassim -- were seen inside Bani Walid.
Saif al-Islam, who was once viewed as Gadhafi's possible successor, is wanted along with his father, for crimes against humanity for a brutal crackdown on anti-government protesters. Mutassim, a defender of his father, served as Gadhafi's national security adviser.
Ben Ali also said he received intelligence reports that loyalist forces were moving captured NTC fighters to Qasr Bu Hadi for use as human shields. That town is 10 miles east of Sirte.
Loyalists and opposition forces clashed about 55 kilometers (34 miles) outside of Sirte, said NTC media committee spokesman Jalal el Gallal.
CNN can not independently verify the reports.
The renewed fighting came as Interpol issued Red Notice arrest warrants Friday for Gadhafi, who is wanted by the International Criminal Court in The Hague for alleged crimes against humanity.
A Red Notice allows Interpol, the international police agency, to circulate arrest warrants widely with an intention to extradite suspects to the ICC.
At the United Nations, Ian Martin, the secretary-general's special envoy to Libya, told reporters that fears of a humanitarian disaster within the capital city have not materialized.
Tripoli's infrastructure has suffered little damage, the disruption of the water supply has been largely alleviated, supplies of fuel and electricity are improving, schools are slated to reopen September 17, and there has been no general breakdown of public order, said Martin, who had earlier briefed the Security Council after his return from five days in Libya.
"That's quite a striking conflict with other post-conflict" cities, he said.
But those advances do not minimize the enormous challenges that transitional authorities still face.
A Supreme Security Committee has been established in Tripoli to bring all armed elements under a single command, but "the proliferation of weapons is a major concern, including to Libya's neighbors," Martin said.
"The approach they're taking is to, at this stage, tell the very top echelon of the military, the police, the civil service, to remain at home while decisions are taken as to which of them should or should not be part of the future," he said.
Despite appeals by NTC leaders, acts of revenge have been carried out, "especially of sub-Saharan Africans accused -- often, I think, quite wrongly -- of having fought for the Gadhafi regime," he said.
In addition, "terrible evidence continues to come to light of the deliberate human rights abuses and crimes of the Gadhafi regime, both those that took place over many years and during the fall of Tripoli, when many of the prisoners were massacred," Martin said.
Meanwhile, an interim government is to be established within 30 days of the declaration of liberation, U.N. envoy Martin said. Until then, the NTC is assuming "caretaker responsibilities" to carry out urgently needed functions, he added.
U.N. Secretary-General Ban Ki-moon has proposed a support mission for three months, after which "we would then go back to the Security Council for a longer mandate," Martin said
Sent from my BlackBerry® smartphone provided by Airtel Nigeria.
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