Forces loyal to Libya's interim authorities say they have entered Bani Walid, one of the last towns still loyal to Col Muammar Gaddafi.
Fighters with Libya's interim authority say they have raised their flag over Bani Walid, one of the last towns still loyal to Col Muammar Gaddafi.
NTC military commanders said they met heavy resistance from Gaddafi loyalists in the town, some 170km (110 miles) south-east of the capital, Tripoli.
Military spokesman Ahmed Bani said that 90% of the town had been liberated, including the centre.
Meanwhile, fighting is continuing for Col Gaddafi's hometown of Sirte.
Forces with the National Transitional Council (NTC) have besieged Bani Walid for weeks and taken heavy casualties.
And a pro-Gaddafi television station has confirmed reports the ex-leader's son, Khamis, was killed in late August.
Further east, NTC forces are still struggling to overcome loyalists holed up in the centre of Sirte.
Arrai television, based in Syria, said he had died during fighting with National Transitional Council (NTC) forces in the city of Tarhouna, 90km (60 miles) south-east of Tripoli.
The BBC's Wyre Davies in Sirte - Col Gaddafi's hometown - says anti-Gaddafi forces have resorted to firing shells and rockets to suppress the sniper fire stalling their advance.
The son of Col Gaddafi's intelligence chief, Mohammed Abdullah al-Sanussi, was also killed during the battle, Arrai TV said. An earlier report from news agencies suggested that it was the intelligence chief himself who had been killed.
Most of Sirte's residents have fled.
Khamis Gaddafi has been reported dead twice before since the uprising against his father began, only to reappear.
Pincer attack
UK Foreign Secretary William Hague has paid a brief visit to the Libyan capital, Tripoli, as part of a wider regional tour of north Africa. His main purpose was to re-open the British embassy and he also met NTC chairman Mustafa Abdul Jalil.
Speaking in Tripoli, Mr Bani said revolutionary forces in Bani Walid had suffered "heavy casualties" but declined to give a number.
As well as pressing the new authorities on recent allegations of abuse of prisoners in detention, Mr Hague announced a package of support including extra help for demining around the towns of Sirte and Bani Walid, where fighting continues almost two months after the capital fell to anti-Gaddafi forces.
Celebratory gunfire erupted as groups of fighters entered the town. Troops had launched a pincer attack from the north and south which met in the city centre, capturing the castle at the heart of the sprawling oasis town.
Mr Hague has appointed Sir John Jenkins, formerly the special UK representative to Libya and based in Benghazi for the past few months, as ambassador.
Jubilant fighters hoisted the red, black and green flag of the new interim government over mosques and other buildings, tearing down the all-green emblem of the ousted regime.
The former embassy building, which was ransacked during the conflict, will take two years to be repaired and made ready for staff to move into.
Witnesses said there was a stench of death hanging over the town's hospital where several decomposed bodies had lain in the mortuary.
'Resistance'
The hospital began admitting patients again after a team from the International Committee of the Red Cross arrived with much-needed medical supplies, correspondents reported.
Also in the capital, bulldozers have begun to demolish Col Gaddafi's fortress-like Bab al-Aziziya compound.
However, there was no electricity and several wards have been gutted by shelling.
Bani Walid, some 170km (110 miles) south-east of Tripoli, was one of Col Gaddafi's bastions where it was suggested he might make a last stand. The ousted leader's whereabouts are still unknown although he is widely believed to be hiding in Libya's vast southern desert.
On Sunday, a pro-Gaddafi TV station confirmed reports that Col Gaddafi's son, Khamis, had been killed in late August.
Arrai television, based in Syria, said he had died during fighting with NTC forces in the city of Tarhouna, 90km (60 miles) south-east of Tripoli.
Khamis Gaddafi has been reported dead twice before since the uprising began, only to reappear.
UK Foreign Secretary William Hague paid a brief visit to Tripoli as part of a regional tour of north Africa on Monday. His main purpose was to re-open the British embassy in the capital and he also met NTC chairman Mustafa Abdul Jalil.
The embassy building, which was ransacked during the conflict, will take two years to be fully repaired.
In Tripoli on Sunday, bulldozers began to demolish Col Gaddafi's fortress-like Bab al-Aziziya compound.
Interim leaders said it was time "to tear down the symbol of tyranny".
Interim leaders said it was time "to tear down the symbol of tyranny".
Correspondents say local people have already turned a courtyard, from where Col Gaddafi once made fiery speeches, into a weekly pet market.
NTC commanders say troops have launched a fresh assault on the desert town of Bani Walid, but the extent of their advance into the desert town remains unclear.
Fighters approached the town on Sunday from the north and south after launching a barrage of artillery fire against the positions of pro-Gaddafi fighters, according to the AFP news agency.
Some 1,500 Gaddafi loyalists are believed to be in the town.
"We attacked this morning from the south-west. Our men were inside the town this afternoon. But there was heavy resistance", NTC commander Jamal Salem told the news agency.
Some reports said the NTC forces had reached the city centre, but these have not been verified.
Last week, troops were pulled back after suffering heavy losses.
Along with Sirte, Bani Walid is one of only two remaining towns in Libya resisting the rule of the NTC.
In Sirte, commanders have been reorganising their forces in an attempt to prevent friendly fire, which some say is slowing their advance.
The BBC's Wyre Davies in Sirte said on Sunday there had been an attempt to co-ordinate the assault with fighters from Misrata in the west told to hold their positions, while troops from Benghazi in the east tried to take ground in the city centre.
However, the situation is chaotic and violent, he adds.
At one point the BBC team in Sirte came under heavy sniper fire and a young Libyan nearby was shot dead as they dived for cover.
'Looting'
As the fighting continues, the NTC is struggling to exert its authority over the country.
There have been reports of widespread looting by fighters around Sirte, with witnesses saying truckloads of stolen goods are being driven away.
Reporters from Associated Press said they saw trucks loaded with everything from tractors and heavy machinery to rugs, freezers, furniture and other household goods being driven off.
