Libyan rebels said they pushed their campaign closer to Tripoli today by seizing an eastern town, as fierce fighting raged on in a key town west of the capital and casualties rose on both sides.

As the battle to unseat leader Muammar Gaddafi gathered pace, the recently formed national council -- the opposition's embryonic government -- was set to hold its first formal meeting in the eastern rebel stronghold of Benghazi.

A rebel officer who defected when the uprising began last month said "we pushed them past Bin Jawad and today we will pound them back to Sirte," Gaddafi's hometown, about 150 kilometres to the west.

An AFP reporter saw groups of rebels in Bin Jawad, a small settlement of two restaurants, shacks and houses.

Asked when the rebels would advance further towards Sirte, a retired soldier turned rebel said it would depend on reinforcements and the weather. A dust storm drastically reduced visibility in Ras Lanuf today.

Among rebels, there were reports of negotiations for a peaceful entry into Sirte, although that would seem unlikely given its symbolism for Gaddafi.

Namil Mashash, a rebel leader in Ras Lanuf, told AFP "we can easily enter Sirte, but we want to avoid the loss of life. That is why we are negotiating to go to Sirte without fighting and then continue on to Tripoli."

Defected soldier Ibrahim al-Atrashi said that, "in the past three days, 7,000 men have moved from Benghazi west towards the front."

After heavy clashes yesterday, the rebels controlled Ras Lanuf, a pipeline hub on the Mediterranean coast that houses a major refinery and petrochemical complex.

Hospitals in rebel-held towns to the east said they had received up to 10 dead and more than 20 wounded from yesterday's fighting for the town.

Atrashi said 16 rebels died. He also said 25 loyalists were killed, but that was impossible to confirm independently.

Meanwhile, the death toll from mysterious twin explosions at an arms dump in the rebel-held eastern city of Benghazi yesterday night rose to between 32 and 34, a doctor said today.

"We're having problems at arriving at an exact number of dead as several bodies were torn apart by the explosions," said Hussem al-Mejri, at Benghazi's Al-Jala Hospital.

Libyan planes were circling overhead in Bin Jawad and Ras Lanuf, about 40 kilometres east.

One rebel said: "I want to give a message to America. See these planes? We want a no-fly zone," something Western powers have so far been unwilling to impose.

At funerals for those killed in Ras Lanuf, another man said "there will be rivers of blood... How long will the West hold back and do nothing? People are asking why the West is watching without doing anything."

French Foreign Minister Alain Juppe said today his country was seeking a UN Security Council resolution to impose a no-fly zone.

"We are working in New York with the British to get a UN Security Council resolution creating an air exclusion zone to avoid bombings," he said.

In Libya's west, loyalists rained tank shells and machine gun fire on Zawiyah, 60 kilometreswest of Tripoli, as they sought to retake the city from rebels, a Sky News correspondent there said.

Later, there were reports tanks manned by Gaddafi's forces had fired on houses when they launched a fresh assault on the strategic protest centre.

"At least seven people were killed in the offensive launched this morning by two battalions on the city, and there are dozens of wounded," a doctor in Zawiyah told AFP earlier.

"What happened this morning is horrible. The mercenaries opened fire on anyone who dared go outdoors, even on children," said the doctor, appealing for help.

The doctor and a resident stressed that, despite the heavy assault, rebels were still in control of the centre of Zawiyah. Another resident said loyalists had been pushed out of the town.

In Benghazi, headquarters of the rebel forces that control virtually the whole of the east, a spokesman for their self-declared national council said it was poised to hold its first session -- in secret for fear of assassination.

"The national council's first formal meeting is starting this morning," Mustafa Gheriani told AFP, but did not disclose a time or place.

"It's a safety issue. This guy (Gaddafi) still assassinates people."

Former justice minister Mustafa Abdel Jalil, one of the first high-profile Libyans to defect from Gaddafi's four-decade regime when the uprising began, has been appointed chairman of the 30-member body.

Rebels say they have set up local councils in cities they hold across the east and intend their transitional government to lead the country into an election.

Gaddafi's regime is still being boosted by millions of dollars of oil revenues despite Western sanctions, the Financial Times reported.

The newspaper, citing a senior Western oil official and traders, said payments for exports were finding their way back to Libya's central bank, and possibly into Gaddafi's control.

Reporting from Zawiyah, Sky News correspondent Alex Crawford said residents had sheltered in mosques as troops of the Khamis Brigade, under the command of one of the strongman's sons, tried to retake the centre.

Crawford said the town's hospitals had received at least eight dead and that she had also seen the bodies of up to a dozen loyalists in the market square which has been the focal point of the anti-regime protests.

"There was such intense fighting for three hours, and lots and lots of casualties... I saw people with blown off legs, with blown off ankles, chest wounds, head wounds," she said.

Crawford said some defectors had brought their weapons with them, including anti-tank weapons, anti-aircraft weapons and even a few tanks.

"How they managed to fight them back is absolutely a minor miracle," she said, adding loyalists remained on the town's outskirts.

With the protests spreading across the Arab world, threatening US allies like Bahrain and Oman, the Wall Street Journal reported Washington was moving towards a strategy of keeping in power regimes willing to reform.

Citing unnamed officials and diplomats, the newspaper said the administration was leaning toward this approach even if that means the full democratic demands of Arab citizens might have to wait.

"What we have said throughout this is that there is a need for political, economic and social reform, but the particular approach will be country by country," the paper quoted a senior administration official as saying.

In other developments across the Arab world, the Saudi interior ministry said protests were banned as they ran counter to Islamic sharia law and Saudi traditions, while Omani Sultan Qaboos sacked two ministers.