Pro-government forces have intensified attacks on Libyan rebels, forcing them to abandon the key town of Bin Jawad.
The BBC’s Nick Springate in Bin Jawad said hundreds of cars were fleeing eastwards from the town, which had been in rebel hands earlier on Tuesday.
The city of Misrata, closer to Tripoli, is also reported to be under heavy attack from government troops.
The renewed fighting comes as delegates from dozens of countries meet in London to discuss the future of Libya.
Anti-Gaddafi forces had made rapid progress westwards from their stronghold in Benghazi in recent days – greatly aided by international air strikes – seizing a number of coastal communities and important oil installations, including Ras Lanuf, Brega, Uqayla and Bin Jawad.
But on Tuesday rebel fighters said pro-Gaddafi forces had used heavy weaponry to check their advance.
The rebels first retreat from the town of Nawfaliya, 120km (75 miles) from Col Gaddafi’s birthplace of Sirte, to the coastal town of Bin Jawad, some 30km further east.
Our correspondent in Bin Jawad reported intense fighting over the town before the rebels fled in hundreds of vehicles.
Bin Jawad town is no longer in rebel hands, he said.
Earlier, Pentagon spokesman Vice Adm Bill Gortney had said that because the Libyan rebels were not well organised, any military gains they made would be tenuous.
He said the rebels were clearly benefiting from the actions of the US, which has started using heavily-armed low-flying aircraft against government forces.
Susan Rice, the US ambassador to the UN, said on Tuesday the US had not ruled out arming the rebel forces.
Misrata ‘in danger’
The international military action continued overnight and on Tuesday.
US Navy officials said ships from the US Sixth Fleet attacked three Libyan ships that had been firing indiscriminately at merchant ships in the port of Misrata, west of Sirte.
One of the vessels was destroyed and a second beached, while the third was abandoned, the officials were quoted as saying by Reuters.
A resident of Misrata told the BBC that pro-Gaddafi troops were attacking the city with tanks and heavy arms. Rebel leaders in Benghazi say at least 124 people have been killed in Misrata in the past nine days.
“Misrata is in danger,” a rebel spokesman told the AFP news agency.
“The massacre that was avoided in Benghazi thanks to the intervention of coalition forces will be carried out in Misrata.”
Rebel radio has been urging more people in the west to join the anti-Gaddafi uprising.
Nato has denied that its air strikes are meant to provide cover for a rebel advance.
But while Nato insists it is impartial in the conflict, Russia has renewed its expressions of concern, saying intervention in an internal civil war is not sanctioned by UN Security Council Resolution 1973.
Some 40 delegations – from the coalition, the UN, Nato, the African Union and Arab League, but not the Libyan government – are taking part in a meeting in London to discuss the way forward for Libya.
Rebel officials have been invited for talks on the meeting’s sidelines, although not to the conference itself.
Opening the conference, British Prime Minister David Cameron said all those attending wanted to “help the Libyan people in their hour of need” and enable them to create a “future free from violence and free from oppression”.
He said the attendees must reaffirm their commitment to the UN resolution on Libya, ensure the fast delivery of humanitarian aid and help the Libyan people plan for a post-conflict future.
UN Secretary General Ban Ki-moon praised the speed with which the international community had responded to the crisis, saying the transition to a democratic government and society in Libya “will take time and the support of us all”.
US Secretary of State Hillary Clinton said the military action would continue until Col Gaddafi complied with the terms of the UN resolution.
But she stressed: “We cannot and must not attempt to impose our will on the Libyan people but we can and must stand with them as they attempt to determine their own destiny.”
Speaking ahead of the conference, British Foreign Secretary William Hague had said he wanted Col Gaddafi to leave power and face trial at the International Criminal Court.
In a letter to those attending the conference, Col Gaddafi called for an end to the “barbaric offensive” on his country.
Libyan Deputy Foreign Minister Khaled Kaim has called on those attending to act as “peacemakers, not warmongers”.
On Monday evening, in his first televised address on the Libyan intervention, US President Barack Obama said the international action had saved “countless lives”.
“We have stopped Gaddafi’s deadly advance,” he said at the National Defense University in Washington DC.
But having led the initial campaign, the US would hand over the lead in enforcing the no-fly zone and protecting civilians on the ground to its allies.
“We must always measure our interests against the need for action,” the president continued. “But that cannot be an argument for never acting on behalf of what’s right.”
Earlier, in a video conference with French President Nicolas Sarkozy, German Chancellor Angela Merkel and Mr Cameron, Mr Obama agreed that Col Gaddafi “had lost any legitimacy to rule and should leave power, and that the Libyan people should have the political space to determine their own future”, the White House said.
An Italian proposal to end the crisis includes offering Col Gaddafi an escape route from Libya, ensuring a quick ceasefire and facilitating dialogue between rebels and tribal leaders.
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