Pressure has mounted on isolated Libyan ruler Col Muammar Gaddafi after a chorus of international condemnation and resignations by top officials.
The man considered the colonel's number two, Interior Minister Abdel Fattah Younes al-Abidi, is among senior figures who have joined the opposition.
The UN Security Council demanded an end to the violence on Tuesday, while the Arab League suspended Libya.
Protesters greeted an angry speech by the veteran leader with defiance.
The BBC's Jon Leyne, in eastern Libya, says people there believe the government now controls just a few pockets of territory including parts of the capital Tripoli and the southern town of Sabha.
Gunfire in Tripoli
After a week of upheaval, protesters backed by defecting army units are thought to have almost the entire eastern half of Libya under their control.
At least 300 people have died in the uprising, although Italian Foreign Minister Franco Frattini told reporters in Rome a death toll of 1,000 was more "credible".
Mr Frattini also told Corriere della Sera newspaper he feared an immigrant exodus on a "biblical scale" if Col Gaddafi was toppled, predicting up to 300,000 Libyans could flee.
French President Nicolas Sarkozy meanwhile called for the European Union to adopt "swift and concrete sanctions" and to suspend ties with Libya.
He spoke as France's Total became the latest oil company to announce that it was suspending its operations in the North African nation.
The Associated Press news agency reports that Gaddafi supporters and hired foreign mercenaries opened fire on the streets of Tripoli on Wednesday.
There are also unconfirmed reports that protesters have seized control of the north-western city of Misurata, and have been raising pre-Gaddafi flags in celebration.
Meanwhile, European countries have been evacuating their citizens from Libya.
France, Turkey and Russia are among the nations that have sent planes and frigates to pick up thousands of their stranded nationals.
A UK warship, HMS Cumberland, has been sent to the Libyan coast ahead of a possible evacuation.
The US, China and India are also making arrangements to rescue their citizens.
One American who reached Vienna on a flight from Libya, Kathleen Burnett, told Associated Press the scene at Tripoli airport was "total chaos", adding: "The airport was mobbed, you wouldn't believe the number of people."
And a Briton airlifted out by the Portuguese told the BBC he knew of dozens who were trying to get to Tripoli airport but were too afraid because of "the soldiers who are out on the streets looting and plundering".
The UN Security Council's statement in New York late on Tuesday came amid reports that foreign mercenaries have been attacking civilians and warplanes bombing protesters.
Its 15 members said the Libyan government should "address the legitimate demands of the population", act with restraint, and respect human rights.
Rebels braced for counter-attack
Jon Leyne reports from the rebel-held city of Benghazi, where people have been celebrating an end to Colonel Gaddafi's rule in the east of the country. But they're beginning to realise the fight for control of the whole country is a long way from over.
Rebels hold town in Sahara
Ian Pannell has been to an area of Libya's Sahara desert, now in the hands of rebels. He finds the threat that Colonel Muammar Gaddafi's forces could return ever present and the rebels' hold on their new territory precarious.
Libya's front line
John Simpson in Aqayla in central Libya, which he says it is "not like the normal front line of a war zone".
Rescue mission starts
Ben Brown on the Libyan-Tunisian border, where an international effort has begun to rescue thousands of stranded people.
Navigate the map to see the latest reports from correspondents across the region as the crisis unfolds.
Protests in the capital had centred on Green Square and various key buildings, like the headquarters of state TV and the People's Hall, were attacked and damaged. But Libyan leader, Muammar Gaddafi, and his supporters are very much in control of Tripoli. Colonel Gaddafi has appeared several times on television from his compound in Bab al-Azizia making defiant speeches condemning the protests.
The Libyan Army is a weak force of little more than 40,000, poorly armed and poorly trained. Keeping the army weak is part of Colonel Muammar Gaddafi's long-term strategy to eliminate the risk of a military coup, which is how he himself came to power in 1969. The defection of some elements of the army to the protesters in Benghazi is unlikely to trouble the colonel. His security chiefs have not hesitated to call in air strikes on their barracks in the rebellious east of the country.
Libya produces 2.1% of the world's oil. Since the protests began, production has dropped, although Saudi Arabia has promised to make up any shortfall. The high revenue it receives from oil means Libyans have one of the highest GDPs per capita in Africa. Sirte basin is responsible for most of Libya's oil output. It contains about 80% of the country's proven oil reserves, which amount to 44 billion barrels, the largest in Africa.
Most of Libya's 6.5m poplation is concentrated along the coast and around the country's oilfields. Population density is about 50 persons per square kilometre along the coast. Inland, where much of the country is covered by inhospitable desert, the population density falls to less than one person per square kilometre.
Libya's deputy permanent representative to the UN, Ibrahim Dabbashi - who called on Monday for Col Gaddafi to quit - said the statement was "not strong enough".
Meanwhile, Interior Minister Mr Abidi - head of the powerful Thunderbolt commando brigade - read a resignation statement from his desk, urging the army to support the people and their "legitimate demands".
The Libyan ambassador to Indonesia, Singapore and Brunei became the latest figure to quit on Wednesday, in protest at the crackdown on demonstrators in his country.
A senior aide to Saif al-Islam Gaddafi, a son of the Libyan leader, has also quit, Reuters news agency reports.
A number of senior Libyan officials, including ministers, diplomats and military officers, have swung their support behind the protesters.
Col Gaddafi's speech on Tuesday, when he referred to the protesters as rats and cockroaches, has been greeted with a mixture of anger and mockery.
During the rambling 75-minute address on state TV, Col Gaddafi - who has ruled the country since taking power in a 1969 military coup - vowed to crush the revolt and die as a martyr.
In the eastern opposition strongholds of Benghazi, Libya's second city, and Tobruk, demonstrators poured scorn on the veteran ruler.
In Tripoli, bursts of gunfire and blaring of car horns rang out, although it is not clear if protesters or Gaddafi loyalists were responsible.
German Chancellor Angela Merkel said Col Gaddafi's speech was "very, very appalling" and "amounted to him declaring war on his own people".