A warplane fired rockets near a checkpoint on the eastern outskirts of the rebel-held oil terminal town of Ras Lanouf, 400 miles east of the capital Tripoli.
Sky correspondent Dominic Waghorn, at the scene, said: “It’s a very volatile atmosphere and Gaddafi’s forces are taking on the rebels head-on.
“When we witnessed the air strike by a Libyan Air Force fighter jet, the rebels opened up an extraordinary array of weaponry, including rocket-propelled grenades and machine guns, and everything was being fired into the air.”
Foreign Secretary William Hague confirmed to the Commons that he authorised the “dispatch of a small British diplomatic team” to “build on initial contacts and to assess the scope for closer diplomatic dialogue”.
He said: “They were withdrawn yesterday after a serious misunderstanding about their role, leading to their temporary detention. However, this situation is resolved and they were able to meet the council president.
“We intend to send further diplomats to eastern Libya in due course.”
He added: “Our position is that Colonel Gaddafi must put an immediate stop to the use of armed force against civilians and hand over power without delay.”
In Bin Jawad, 100 miles from the northern Gaddafi power base of Sirte, doctors say seven people were killed and 50 wounded when rebel forces were ambushed.
A number of towns were reportedly pounded with artillery, rockets and gunfire in a dramatic escalation of violence over the weekend, as the country appears to edge towards civil war.
After an onslaught from Gaddafi’s military, rebels continue to occupy the city of Misratah, 120 miles east of Tripoli.
Anti-Gaddafi forces are attempting to advance towards Sirte.
Taking the city would bring them closer to Tripoli, clearing a major obstacle in the rebels’ mission to oust their ruler.
The resilience of Gaddafi’s troops in the face of protests which started in mid-February and their ability to launch a counter-attack on a key coastal road has raised the prospect that the country is heading for months of bloodshed.
Lisa Holland is reporting under supervision of the Libyan government.
“Government forces have more mobility than the rebels thanks to airlift and a decent amount of road transport.”
The United Nations and the European Union have sent fact-finding missions to the north African nation, where reports by residents of attacks on civilians by security forces have triggered a war crimes probe.
Tens of thousands have fled the violence in Libya and crossed the border to Tunisia since the uprising prompted a crackdown by security forces.
An aid official says more than 213,000 foreign workers have fled already. Hundreds of thousands more are struggling to get out.
Jemini Pandya, of the International Organisation for Migration, said there were about 1.5 million foreign migrant workers inside Libya before fighting began.
A £100m emergency appeal is being announced by the United Nations and other agencies.
In an apparent warning to governments planning sanctions against Libya, Col Gaddafi has said his country is an important partner for the West.
“Libya plays a vital role in regional peace and world peace,” he said in an interview with the France 24 television station. “We are an important partner in fighting al Qaeda.”
The rebels have called for UN-backed air strikes against what they say are African soldiers-for-hire used by Gaddafi to crush the uprising against his 41-year-old rule.
The government says it is fighting against al Qaeda terrorists and maintains that its security forces have targeted only armed individuals attacking state institutions and depots.
Some estimates suggest thousands of people have died since the uprising began.