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Leaders of the EU's 27 member states have said Libya's Col Muammar Gaddafi must surrender power.
The EU is holding an emergency summit in Brussels in the hope of finding a common approach to the political and humanitarian crisis.
France has urged other states to follow it in recognising the rebel's interim council, but has so far failed to gain wider support.
The summit comes as forces loyal to Col Gaddafi make major gains.
Western journalists in the city of Zawiya, west of Tripoli, have confirmed the Gaddafi regime's claims that the city has fallen after days of bombardment.
There are reports of fresh air strikes near the oil port of Ras Lanuf to the east, which had been held by the rebels for several days.
No-fly debate
As he arrived at the summit, European Commission President Jose Manuel Barroso told reporters: "Regarding Libya, the problem has a name: Gaddafi. He has to go."
Mr Barroso said the EU would "explore all the possibilities for that to be achieved in full respect of international law and also working in close cooperation with our allies and partners in the region".
German Chancellor Angela Merkel said it "must be totally clear that somebody who wages war against his own people is no partner for talks with the European Union. Therefore we demand Gaddafi's immediate resignation."
Mrs Merkel said the EU must ensure it sends a united signal, as division would "only play into Gaddafi's hands".
British Prime Minister David Cameron also said it was important to show unity.
But the EU states remain divided on what response to take to the crisis.
French President Nicolas Sarkozy has again called on his counterparts to follow him in recognising the authority of the Libyan National Council - the interim authority set up by rebels in their stronghold of Benghazi.
But this stance has been strongly criticised by others.
Dutch Premier Mark Rutte described it as a "crazy move" which contradicted normal diplomatic practice, and Luxembourg Prime Minister Jean-Claude Juncker said: "Europeans would do well if they talk about the measures they want to decide on in the meeting and not the day before."
Mrs Merkel was reported to have been "surprised", while her foreign minister, Guido Westerwelle, said he wanted to learn the views of the Arab League and countries in the region "before we in Europe once more form our own definitive opinion before everyone else".
Mr Sarkozy has also called for "humanitarian zones" to be established in North Africa to cope with the huge numbers of refugees fleeing the violence in Libya.
And France and Britain have advocated potential targeted airstrikes on Libyan facilities - only with UN and Arab League backing - if Col Gaddafi attacked non-violent civilians using war planes or chemical weapons.
BBC Europe editor Gavin Hewitt says there remains, both in Europe and Washington, great caution about this but the credibility of the EU may be at stake if it cannot agree at the summit.
Britain and France have also drafted a UN resolution calling for a no-fly zone to be put in place over Libya, to prevent pro-Gaddafi troops launching from the air, currently the primary advantage the regime's troops have over the rebels.
On Thursday, Nato defence ministers discussed a no-fly zone but decided more planning was needed.
The EU's foreign affairs chief Catherine Ashton has said the EU must work closely with the Middle East and North African region in deciding on what approach to take and that "the Arab world has to lead".
Baroness Ashton there was "no rush to move forward" on the proposals without first securing a UN resolution.
The African Union has reiterated its rejection of any idea of foreign military intervention in Libya.
Zawiya 'retaken'
The summit is taking place as troops loyal to Col Gaddafi appear to have made major gains against the rebel forces.
After intense bombardment, reports indicate that Zawiya, 50km (30 miles) west of Tripoli, has been recaptured by the regime.
A rebel fighter in Zawira told Reuters on Friday they were all but cut off from the rest of the world and called for the imposition of a no-fly zone, saying it would mean Col Gaddafi could be defeated within a week.
On Friday, there were reports of air strikes on Ras Lanuf. Rebels had earlier reported government forces entering the city by boat and in tanks.
Reports speak of hundreds of rebels in cars and trucks fleeing eastwards on the Mediterranean coastal road.
Reuters also reported strikes at the nearby town of Uqaylah.
In a TV interview on Thursday, Col Gaddafi's son Saif al-Islam warned rebels in Benghazi that government troops were on their way.
Large scale protests were held in the city after Friday prayers, calling on Col Gaddafi to stand down. The BBC's Pascal Harter in the city said vast crowds of people wearing the colours of the old Libyan flag were on the streets.
In other developments:
* Gulf Arab states said the Gaddafi regime was illegitimate, and urged contact to be made with the rebels
* US President Barack Obama's top intelligence adviser James Clapper predicted government forces would defeat the rebels
* The BBC News website appears to have been blocked by the Libyan authorities
* The International Committee of the Red Cross said that Libya had now descended into civil war
New EU economic sanctions against Libya come into force on Friday, targeting the country's sovereign wealth fund and central bank.
The Libyan Investment Authority (LIA) wealth fund holds about $70bn (ÂŁ43bn) and has stakes in a number of large European companies.
Hungarian Foreign Minister Janos Martonyi, whose country currently holds the EU's rotating presidency, said on Friday that extra sanctions could include freezing the assets of Libyan oil and gas producer and exporter companies.
Source: BBC
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