Muammar Gaddafi's forces hammered rebels with tanks and rockets, turning their rapid advance into a panicked retreat in an hours-long battle.
The fighting underscored the dilemma facing the US and its allies in Libya - rebels may be unable to oust Gaddafi militarily unless already contentious international air strikes go even further in taking out his forces.
Opposition fighters pleaded for strikes as they fled the hamlet of Bin Jawwad, where artillery shells crashed thunderously, raising plumes of smoke. No such strikes were launched during the fighting, and some rebels shouted: "Sarkozy, where are you?" - a reference to French president Nicolas Sarkozy, one of the strongest supporters of using air power against Gaddafi.
Reports overnight indicated that the rebels were in flight from Brega and Ras Lanouf.
World leaders meeting in London yesterday agreed that Gaddafi should step down but have yet to decide what additional pressure to put on him.
"Gaddafi has lost the legitimacy to lead, so we believe he must go. We're working with the international community to try to achieve that outcome," US secretary of state Hillary Clinton said after the talks.
The rout of the rebels yesterday illustrated how much they rely on international air power. Only a day earlier, they had been storming westward in hopes of taking Sirte, Gaddafi's home town and a bastion of his support in central Libya.
They reached within 60 miles of the city before they were hit by the onslaught from Gaddafi's forces, driving them back east to Bin Jawwad under barrages of rocket and tank fire.
Many of the ragtag, untrained volunteers who make up the bulk of the rebel forces fled in a panicked scramble. However, some of them backed by special forces soldiers from military units that joined the rebellion took a stand in Bin Jawwad, bringing up truck-mounted rocket launchers of their own and returning fire.
The two sides traded salvos for hours, drilling Bin Jawwad's buildings with shrapnel and bullet holes. The steady drum of heavy machine gun fire and the pop of small arms could be heard above the din as people less than a mile outside the village scaled mounds of dirt to watch the fighting.
But by the afternoon, rebels fled further east, their cars and trucks filling both lanes of the desert highway as they retreated to and even beyond the oil port of Ras Lanouf, about 25 miles away. Some loyalist forces had reached the outskirts of Ras Lanouf, where the thud of heavy weapons was heard and black smoke rose from buildings.
"If they keep shelling like this, we'll need air strikes," said Mohammed Bujildein, a 27-year-old rebel fighter. With international strikes, he said, "we'll be in Sirte tomorrow evening".
It was the second time in weeks that rebel forces have been driven back from an attempted assault on Sirte. The last time, early in the month, it nearly meant the end of their movement.
They retreated hundreds of miles west and Gaddafi forces nearly stormed their capital Benghazi, until the US and European strikes began, driving Gaddafi's forces back from bloody sieges.
On the possibility of giving arms to the heavily-outgunned rebels, Mrs Clinton said the US had made no decision and Foreign Secretary William Hague said the subject simply did not come up at yesterday's meeting.
Representatives of the opposition's political leadership, the Interim National Council, met Mrs Clinton and Mr Hague but did not attend the main conference.
Mahmoud Shammam, a council spokesman, suggested Libyans were prepared to fight their own battle. Though the international community had a responsibility to prevent "mass genocide", he told reporters: "We are not asking for any non-Libyan to come and change the regime.
"The aspirations of the Libyan people are to be free, to live under a constitutional democratic system. (We have) had enough of tyranny."
Regime forces continued to besiege the last significant rebel holdout in the west, Libya's third-largest city, Misrata. From Misrata's outskirts, the troops pounded streets and the city's port, residents said. At least three people were killed in shelling on Monday, a doctor in the city said.
The US Navy reported that two of its aircraft and a guided missile destroyer attacked a number of Libyan coastguard vessels, rendering them inoperable, in the port of Misrata. It said the vessels had been "firing indiscriminately" at merchant ships.
US ships and submarines also unleashed 22 cruise missiles late on Monday and early yesterday at Libyan missile storage facilities in the Tripoli area.
Libyan state TV reported strikes in Tripoli by "the Crusader colonial aggression" and said that "the cost of each rocket and bomb is paid for by Qatar and the Emirates" - a dig at the two Arab nations that have joined the international campaign.
In an open letter to the international community, meanwhile, Gaddafi called for a halt to the "monstrous assault" on Libya and maintained that that the rebels were supported by the al Qaida terrorist network, a claim the opposition denies.