Anti-Gaddafi forces in Libya say they are close to capturing Bani Walid, one of only four towns still under the control of loyalist fighters.
The battles erupted a day before a deadline set by Libya's interim National Transitional Council for pro-Gaddafi outposts to surrender to the interim government or face onslaughts.
Officials said the outbreaks of fighting meant the ceasefire had effectively been scrapped. Commanders said they had no choice but to go in after coming under attack, a move that could pave the way for some of the final battles of a six-month civil war.
There has also been fierce fighting near the Gaddafi-held city of Sirte, the BBC reports.
In other developments, UN Secretary General Ban Ki-moon has called on the United Nations Security Council to establish a new mission in Libya for an initial period of three months.
The mission would be tasked with helping Libyans organise elections, give advice on the judicial system and help develop an effective police force.
Diplomats say Britain plans to submit a draft resolution to the council to start easing sanctions against Libya, and it is hoped a resolution on the new UN mandate will be approved by the end of next week.
Hundreds march in Benghazi
Meanhwile hundreds of people have marched in Benghazi calling for a shake-up of Libya's new leadership.
Hundreds of people have marched in Benghazi calling for a shake-up of Libya's new leadership.
And some political groups have challenged the country's interim rulers in a memorandum, saying their governance plan does not meet the people's demands.
The Benghazi residents marched, singing that the first martyrs were from Benghazi and criticising what they called climbers and opportunists in the new leadership.