Pro-government forces have intensified attacks on Libyan rebels, forcing them back to the key town of Bin Jawad.
The renewed fighting came as delegates from dozens of countries were gathering in London for a conference on the future of Libya.US President Obama earlier defended the first military intervention of his presidency, insisting that US involvement would be limited.
But he also said overthrowing Col Gaddafi by force would be a mistake.
Anti-Gaddafi forces had made rapid progress westwards from their stronghold in Benghazi in recent days - greatly aided by international air strikes - seizing a number of coastal communities and important oil installations, including Ras Lanuf, Brega, Uqayla and Bin Jawad.
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I am near Bin Jawad, on the coast some 150km east of Col Gaddafi's birthplace, Sirte.
The rebel push seems to have been halted, and opposing fighters are now exchanging fire over this small town.
We think that the rebels, after taking the town of Bin Jawad, have now withdrawn and nobody is in control of the town at the moment.
To the east of the town, the rebels are firing Katyushas and, from its west, the pro-Gaddafi forces are firing artillery in reply.
On the rebel side, I can see about 500 men and 100 vehicles, and for the first time they are using Katyusha rockets.
At the scene
The rebel push seems to have been halted, and opposing fighters are now exchanging fire over this small town.
We think that the rebels, after taking the town of Bin Jawad, have now withdrawn and nobody is in control of the town at the moment.
To the east of the town, the rebels are firing Katyushas and, from its west, the pro-Gaddafi forces are firing artillery in reply.
On the rebel side, I can see about 500 men and 100 vehicles, and for the first time they are using Katyusha rockets.
But on Tuesday rebel fighters said pro-Gaddafi forces had used heavy weaponry to check their advance.
They have been forced to retreat from the town of Nawfaliya, 120km (75 miles) from Col Gaddafi's birthplace Sirte, to the coastal town of Bin Jawad, some 30km further east.Government forces stationed to the west of Bin Jawad are firing artillery rockets at rebels just to its east, says the BBC's Nick Springate at the scene. The rebels are returning fire with Katyusha rockets, he adds.
A Pentagon spokesman in Washington, Vice Admiral Bill Gortney, said that because the Libyan rebels were not well organised, any military gains they made would be tenuous.
He said the rebels were clearly benefiting from actions of the US, which has started using heavily-armed low-flying aircraft against government forces.
Susan Rice, the US ambassador to the UN, said on Tuesday the US had not ruled out arming the rebel forces.
Meanwhile, ships from the US Sixth Fleet attacked three Libyan ships that had been firing indiscriminately at merchant ships in the port of Misrata, west of Sirte.
One of the vessels was destroyed and a second beached, while the third was abandoned, US Navy officials were quoted as saying by Reuters.
In eastern Libya, rebel radio has been urging more people in the west of the country to join the anti-Gaddafi uprising.
'Barbaric offensive' Nato has denied that its air strikes are meant to provide cover for a rebel advance.
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President Barack Obama: ''Broadening our military mission to include regime change would be a mistake''
Ahead of Tuesday's conference, British Foreign Secretary William Hague said he wanted Col Gaddafi to leave power and face trial at the International Criminal Court.
Some 40 delegations - from the coalition, the UN, Nato, the African Union and Arab League, but not the Libyan government - will be represented in London. Rebel officials have been invited for talks on the meeting's sidelines, although not to the conference itself.
In a letter to those attending the conference, Col Gaddafi called for an end to the "barbaric offensive" on his country.
'Regime change' ruled out In his first televised address on the Libyan intervention, Mr Obama said that having led the initial campaign - which had saved "countless lives" - the US would hand over to Nato allies on Wednesday.
"We have stopped Gaddafi's deadly advance," he said at the National Defense University in Washington DC.
But the lead in enforcing the no-fly zone and protecting civilians on the ground would now move to the Americans' allies, he added.
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Khaled Kaim: "The solution is for all parties to be involved in peace-making"
Earlier, in a video conference with French President Nicolas Sarkozy, German Chancellor Angela Merkel and UK Prime Minister David Cameron, Mr Obama had agreed that Col Gaddafi "had lost any legitimacy to rule and should leave power, and that the Libyan people should have the political space to determine their own future", the White House said.
An Italian proposal to end the crisis includes offering Col Gaddafi an escape route from Libya, ensuring a quick ceasefire and facilitating dialogue between rebels and tribal leaders.
Foreign Minister Franco Frattini said he had discussed the proposals with Germany and France.
Libyan Deputy Foreign Minister Khaled Kaim, meanwhile, has called on those attending Tuesday's conference in London to act as "peacemakers, not warmongers".
http://www.bbc.co.uk/news/world-africa-12892798