Fierce fighting is raging for a second day in the key eastern Libyan town of Ajdabiya after forces loyal to Col Muammar Gaddafi pushed back rebels.
The rebels had been outflanked by pro-Gaddafi forces and forced back from their advance on Brega.
The government said it had shot down two rebel helicopters flying in contravention of a Nato-policed no-fly zone but this has not been verified.
Meanwhile an African Union mission is set to arrive in Libya on Sunday.
Heavy gunfire and loud explosions were heard in Ajdabiya on Sunday, with reports of intense shelling of the town from the west, from where pro-Gaddafi forces are attacking.
One rebel to the east of Ajdabiya told Reuters: "There is resistance inside the city. Gaddafi forces are fighting with rebels. They have a presence inside."
Another said: "There are Gaddafi forces inside Ajdabiya in sand-coloured Land Cruisers and we know there are Gaddafi snipers in civilian clothing in the city as well."
Ajdabiya is important to the opposition as it controls a strategic crossroads and is the last town before the main rebel city of Benghazi.
Rebel forces had advanced towards Brega on Saturday but were forced back by a counter-attack.
The BBC's Jon Leyne in Benghazi says once again Libyan government forces have shown they are able to operate in a much more sophisticated way than the opposition.
They outmanoeuvred the rebels by coming in from the desert.
Our correspondent says the rebels claimed to have captured Algerian mercenaries from Col Gaddafi's forces, though this cannot be independently verified.
Libyan Deputy Foreign Minister Khaled Kaim said government forces had shot down two rebel helicopters in the east.
He said: "A clear violation was committed by the rebels to [UN] resolution 1973 relating to the no-fly zone."
Nato says it is applying the zone fairly and on Saturday escorted a rebel MiG-23 fighter jet back to its base.
On Sunday, Nato air strikes destroyed 25 tanks, the alliance said. Eleven tanks were near Ajdabiya, while 14 were around Misrata. It also said it hit two ammunition storage bunkers west of Ajdabiya.
Meanwhile, the African Union diplomatic mission has gathered in Mauritania, with South African President Jacob Zuma flying in on Sunday.
It comprises representatives from South Africa, Mauritania, Mali, the Republic of Congo and Uganda.
The mission has called for an "immediate end" to fighting, "diligent conveying of humanitarian aid" and "dialogue between the Libyan parties".
Members are flying to Libya on Sunday although the exact make-up of the team and its itinerary have not been confirmed.
Our correspondent, Jon Leyne, says its plan for the two sides to work together in a transition to democracy looks to be a non-starter.