AFP

Fierce clashes erupted on Friday in Bani Walid, a bastion of Muammar Gaddafi, as a deadline loomed for loyalists of the deposed Libyan strongman to surrender or face a final assault.

And while world police body Interpol called for the fugitive Gaddafi's arrest for crimes against humanity, following a request by the International Criminal Court (ICC), there were reports a number of his generals had fled Libya.

The National Transitional Council (NTC) has set a Saturday deadline for towns still loyal to Gaddafi to surrender, and on-off talks have been going on for days over Bani Walid, where a number of former regime officials, including Gaddafi's spokesman Mussa Ibrahim, are believed to be holed up.

As the deadline neared, a top NTC commander said no breakthrough had come and "decisive military action" was imminent.

"Up to now these negotiations did not lead to positive results," said Salem Jeha - a highly influential member of Misrata's military council - a few hours ahead of the midnight deadline.

"If the negotiations fail then there will be decisive action, decisive military action," Jeha said from the NTC military headquarters in Misrata.

Jeha said military action could now take place "at any time" adding that "we are not waiting forever."

"But where this military action takes place, that is a surprise. We are in position and we can move in any direction and this is our strength."

Jeha, a former colonel in Gaddafi's army, said he expects to face stiff, but futile, resistance.

"What we know is that the remnants of Gaddafi's troops are fighting until the end to hold on to their territory. I am very sure that they cannot defend the positions they are in."

Even ahead of the deadline, fighting broke out in Bani Walid as pro-NTC elements inside the town clashed with Gaddafi forces.

"Sleeper cells of revolutionaries went into action and fighting has taken place between them and armed men loyal to Gaddafi on the streets of the town," Abdullah Kenshil, the NTC's chief negotiator, told journalists about 20 kms from Bani Walid.

Kenshil said the main forces of the NTC were still outside Bani Walid, about "one kilometre from the town."

"We will not launch an attack without a decision by the NTC, but for now we have no choice and we want to protect our forces and the inhabitants of the town," he said.

One "revolutionary" fighter was killed and four wounded, while there were three deaths in the ranks of the pro-Gaddafi forces.

NTC commander Abdullah al-Khzami said earlier that "fierce fighting between our forces and pro-Gaddafi ones are underway in sectors very close" to Bani Walid.

"The revolutionaries have reached the gates of the city, and its first neighbourhoods lie before us, but we will not enter until the ultimatum expires," he told AFP.

Columns of smoke and the crump of shelling could be heard by journalists 20 kms from Bani Walid as convoys carrying fighters and ammunition were heading towards the town 170 kms southeast of Tripoli.

Another commander, Abdullah al-Hakim, said pro-Gaddafi forces were shelling his forces about 30 kms away "to keep us from advancing on Bani Walid," and that one of his men had been killed.

Meanwhile, on the road to Gaddafi's hometown of Sirte, rebels who had captured Red Valley, 60 kms to the east on Thursday, were under counter-attack, an AFP correspondent reported.

Sporadic fighting ensued on Friday morning, and Gaddafi forces launched their counter-offensive with the arrival of a convoy of 10 vehicles along the front line.

NTC fighters fired anti-aircraft guns and held their positions under cover along the road and behind buildings just outside the town.

Speaking for the first time from Tripoli since it was captured on August 23, de facto premier Mahmud Jibril refused to speculate on Gaddafi's whereabouts, but acknowledged the conflict would end only with the "capture or elimination of Gaddafi."

The NTC fears Gaddafi will try to slip across one of Libya's porous borders, and neighbouring Niger strongly denied he was there after a convoy carrying other senior ousted regime officials arrived on Monday.

In a defiant message on Thursday, Gaddafi dismissed as lies reports he had fled to Niger, insisting he was still in Libya.

Niger, which has also denied that he is there, vowed to respect international commitments if wanted former Libyan officials cross into its territory.

"If wanted Libyans are on Nigerien soil, we will follow existing procedure when legal requests are filed" by international courts, Justice Minister Marou Amadou told AFP.

"We are not talking about (Muammar) Gaddafi, but about those who are already in Niger," he said, insisting that "we do not know" the fugitive former Libyan leader's whereabouts.

Niamey earlier confirmed having allowed a dozen Gaddafi aides, including internal security chief Mansour Daw, into the country for "humanitarian reasons". They are being held under house arrest in Niamey.

Interpol said it had issued a "red notice" for the arrest of Gaddafi, his son Seif al-Islam and his intelligence chief Abdullah al-Senussi, a day after ICC prosecutor Luis Moreno-Ocampo asked for the agency's help.

On Friday, a source from Niger's ethnic Tuareg community in Niamey said a number of Libyan generals loyal to Gaddafi are now in Burkina Faso after having passed through Niger.

On the economic front, China said it was ready to help rebuild the North African nation, and The Netherlands said it received permission to unfreeze $US2 billion ($A1.89 billion) in Libyan assets and send them to the NTC.

And diplomats in New York said the UN Security Council could pass a resolution next week easing an asset freeze and arms embargo against Libya to help launch a UN mission there.