Libyan rebels clashed with pro-Gaddafi troops as they tried to put pressure on the last main bastion of Gaddafi's forces along the Mediterranean coast, a rebel spokesman said.
Rebels are approaching Sirte, Gaddafi's home town, from two sides and are hoping to negotiate the surrender of its defenders. But the rebels say Gaddafi's hardcore loyalists in the town 450 km (280 miles) east of Tripoli have vowed to fight to the death.
Gaddafi's whereabouts are not known and there has been some speculation he could have fled to Sirte, a town of about 100,000 people including many members of his tribe.
Gaddafi's forces withdrew from the eastern oil towns of Brega and Ras Lanuf towards Sirte this week and are making a stand at a place known as the Red Valley, about 120 km (80 miles) east of the pro-Gaddafi stronghold, said rebel spokesman, Mohammad Zawawi.
Fighters from the central city of Misrata are moving from the west towards Sirte, and are now about 50 km (30 miles) away, he said.
"Gaddafi's forces in the Red Valley are firing at us with rockets. A lot of our forces are up there with tanks and artillery and they are building a new defence line before Ben Jawad," said Zawawi, referring to a small town on the coast road.
Nato is also assisting in the manhunt by Libyan rebels for Gaddafi, whose compound in Tripoli was seized earlier this week, and other members of his regime.
The SAS is leading the search, according to unconfirmed reports.
A £1 million reward is on the table for anyone able to capture the ousted dictator.
Soldiers from the elite 22 SAS Regiment were said to be helping track down the 69-year-old.
Foreign Secretary William Hague said the Gaddafi regime is "finished" but Nato operations will continue while Libyan civilians remain under threat from fighting,
After chairing a meeting of the Government's National Security Council on Libya, Mr Hague said forces loyal to Colonel Muammar Gaddafi were still putting up resistance. He added that UK forces would continue to play their part in the Nato campaign.
"Our resolve is unwavering on this, as it has been throughout the crisis, so it's important to stress that these operations go on," he said."The Gaddafi regime is finished - there is no way back for the Gaddafi regime and clearly many of its key members are on the run."
He added: "But there remain forces active loyal to the Gaddafi regime, concentrated particularly in the south of Tripoli and around the city of Sirte.
"As long as that remains the case and they remain a threat to the civilian population, the Nato operations will continue.
"So this is not over yet. The regime is finished but fighting, as everyone can see from their television screens, is not over yet."
