Forces loyal to Libyan strongman Muammar Gaddafi attacked a key rebel-held town, as the major powers remained split on measures to ground his warplanes.
Rebel fighters in Ajdabiya said four shells had crashed west of the town, while former airforce colonel Jamal Mansur, who had defected from Gaddafi's army, reported air strikes.
Mansur also said rebels had regained a foothold in Brega, 80km to the west, which the Libyan army said it had captured on Sunday.
The UN Security Council meanwhile wrangled over Arab calls for a Libya no-fly zone, with Russia insisting "fundamental questions" remain.
European and Arab envoys emphasised the need for urgent UN action as Gaddafi's forces advanced. But divisions among the major powers meant that the Security Council would need several days to agree measures, said diplomats.
Ajdabiya guards vital roads north along the coast to the rebel capital of Benghazi and east across the desert to the oil port of Tobruk, which has given the insurgents control of eastern Libya up to the Egyptian border.
The lightly armed rebels have been pushed back some 200km by Gaddafi's better equipped forces in the past week.
The loyalist troops are now only 170km from rebel-held Benghazi, Libya's second city with a population of around one million.
The rebels braced for new attacks knowing they could expect little quarter from Gaddafi's troops, who are equipped with heavy weaponry and warplanes to against which they have limited defences.
On the western front, Gaddafi's forces entered the town of Zuwarah after clashes with rebels in which at least one person was killed, a witness and pro-Gaddafi source said.
Libyan army spokesman Colonel Milad Hussein said in Tripoli that government forces were "marching to cleanse the country" of insurgents, whom he called "rats and terrorists".
But state television in Tripoli said former Libyan soldiers such as Mansur who had defected to the rebels would be pardoned if they surrendered to government forces.
Mansur admitted the rebels were seriously ill-equipped and warned they could turn to urban guerrilla warfare.
"We are asking the West to carry out targeted strikes on military installations" as proposed by France, he said.
But as US Secretary of State Hillary Clinton started two days of talks with her G8 counterparts in Paris late on Monday, some major powers remained cautious on the question of military intervention.
Clinton had "private and candid" talks with Libya's opposition national council about how to help their cause, a US official said.
G8 members Britain and France have drafted a resolution for the Security Council to enforce the no-fly zone, with both countries stressing the urgency of the situation.
Their case got a diplomatic boost on Saturday when the Arab League came out in favour of it.
But a spokesman for Japanese Foreign Minister Takeaki Matsumoto made it clear late on Monday such a measure would need a clear international endorsement, such as a Security Council resolution.
And Moscow's UN envoy Vitaly Churkin said "fundamental questions" remained, such as who would implement a no-fly zone - and precisely how it would be implemented.
That task would probably fall in part to the United States, and US President Barack Obama on Monday issued a new warning to Gaddafi, who he said had "lost his legitimacy and ... needs to leave".
But Washington has not yet committed to a no-fly zone.
In Washington on Monday, two influential US senators, Republican John McCain and independent Joseph Lieberman filed a resolution urging Obama not just to recognise the Libyan opposition, but to back the proposed no-fly zone.
Clinton has said a no-fly zone plan will be put to Nato on Tuesday.
But alliance member Turkey has voiced its opposition to intervention, warning it could have dangerous consequences. Germany and Italy have also expressed doubts about the wisdom of such a policy.
Libya's national council said a no-fly zone would boost the anti-regime forces.
"If Gaddafi's forces are at the gates of Benghazi and there's a no-fly zone, of course we will fight," said council spokesman Abdelhafez Ghoqa.
"We can expect anything from a man like Gaddafi, but we will do our best to win," he said in response to a question about the possible bombing of Benghazi.
The European Union has sent a fact-finding mission to Benghazi to look at all options, including an air exclusion zone, a spokeswoman said on Monday.
National council leader Mustafa Abdel Jalil was quoted by the Financial Times on Monday as saying that countries not supporting the uprising would miss out on access to Libya's oil if Gaddafi's regime is deposed.
His comments came as Libya's state news agency reported that Gaddafi invited Chinese, Russian and Indian firms to produce its oil instead of Western companies that had fled the unrest.
But Russia on Monday slapped an entry ban on Gaddafi and froze all financial operations involving the Libyan leader's family and those of his top security aides who were involved in the crackdown on the opposition.
President Dmitry Medvedev's decree also prohibited the export of all goods and services potentially linked to military activity. The measures came on top of last week's arms export ban.
In Tripoli, the UN's new envoy to Libya, Abdul Ilah Khatib, called for an end to the violence and access for humanitarian relief efforts, during talks with Foreign Minister Mussa Kussa.
Khatib had "called for co-operation from the authorities on human rights and humanitarian concerns," UN deputy spokesman Farhan Haq said from New York.
Senior Libyan officials had assured him "the government would fully co-operate" with an inquiry commission into the Libyan revolt set up by the UN Human Rights Council.