Witnesses say Libyan troops have opened fire with machine guns and mortars on anti-government protesters in the city of Benghazi, killing an unknown number of people, including children.
Other witnesses have spoken of snipers firing at protesters from rooftops and there are widespread reports of mercenaries from sub-Saharan Africa being brought in to attack protesters.
A doctor at a local hospital said he and his colleagues were treating hundreds of protesters.
Reports are difficult to verify because foreign journalists have been banned from the country, and local reporters have been barred from travelling to Benghazi reports the BBC.
Internet activity has now come to an abrupt halt in Libya, in what appears to be a deliberate attempt by the authorities to impose an information ban.
Residents say Benghazi and another eastern city, al-Bayda, appear to be out of government control.
Calls for regime change are growing louder in North Africa and the Middle East with protests also in Bahrain, Algeria, Yemen and Djibouti.
Benghazi, about 1000 km from the capital Tripoli, has been the main focus of the demonstrations against Colonel Gaddafi's 42-year rule. State media had warned of retaliation if the unrest continued.
The campaign group Human Rights Watch says at least 104 people have been killed in Libya since the anti-government protests erupted on Wednesday.
At least 15 mourners are reported to have been shot dead at a funeral in Benghazi on Saturday.
But one witness told Reuters news agency that many more had actually died, saying dozens, not 15, had been killed.
Unrest has spread to other towns and cities, but there have been no reports of major protests in Tripoli.