Pro-Gaddafi forces in Libya have been putting up fierce resistance in Bani Walid, one of four towns still controlled by loyalist fighters.
Anti-Gaddafi forces, who had expected to take the town earlier, are still trying to get into the centre.
There was fighting overnight, with exchanges of fire and rockets launched, says the BBC's Richard Galpin, who is outside the town.
Bani Walid is one of four towns still under the control of loyalist fighters.
Rebel casualties have been brought to the hospital outside town, our correspondent adds.
There were more Gaddafi loyalists in the town than the rebels had expected, he says.
A convoy of new recruits was seen heading for the front line earlier on Saturday.
Rebel commanders said on Friday that they had no choice but to go in after coming under attack from pro-Gaddafi forces.
Bani Walid and the other loyalist-held towns had been given until Saturday to surrender to the interim government.
There has also been fierce fighting near the Gaddafi-held city of Sirte.
Rebel forces were forced to pull back after taking heavy casualties in close-quarters fighting, a rebel spokesman is quoted as saying by the AP news agency.
The interim Libyan leadership, the National Transitional Council (NTC), said it had been trying to negotiate a peaceful resolution to stand-offs in Gaddafi-held Bani Walid, Jufra, Sabha and Sirte, but interim Prime Minister Mahmoud Jibril had warned NTC troops would respond if attacked.Niger arrivals
Officials in the Republic of Niger, south of Libya, say that as well as Gen Ali Kana, a commander from the south of Libya, Gen al-Rifi, the Libyan air force chief, also arrived in the northern Niger town of Agadez on Friday.
They have been allowed in, the Niger government said, on humanitarian grounds.
Several convoys of former loyalists are said to have streamed over the border with Niger over the past few weeks.
Niger has not said clearly what its position would be if fugitive leader Col Muammar Gaddafi himself sought asylum in the country.
Officials in Niger, which recently installed democracy after decades of authoritarianism, said they were letting in many sub-Saharan Africans from Libya on humanitarian grounds.
It is still not known where the former Libyan leader or his son, Saif al-Islam, are, our correspondent says.
The ICC has issued a warrant for crimes against humanity against Col Gaddafi, Saif al-Islam and spy chief Abdullah al-Sanussi.
Interpol on Friday issued an arrest warrant for the three.