Libya's army is heading towards the former Gaddafi stronghold of Bani Walid hoping to impose order in the town after deadly clashes there, the chief of staff said on Thursday.

At least 10 people were killed and dozens wounded as Libyan militias linked to the army shelled Bani Walid and faced counter-attacks on Wednesday.

Many of those in the militias were from the rival town of Misrata, which has been enraged by the death of rebel fighter Omran Shaban after two months in detention in Bani Walid. Shaban, from Misrata, was the man who found Muammar Gaddafi hiding in a drain pipe in Sirte on Oct. 20, 2011.

Libya's ruling national congress had ordered the defence and interior ministries to find those who abducted Shaban and were suspected of torturing him to death. It also gave Bani Walid a deadline to hand them over.

Elders have tried to negotiate a solution as militias have taken up position around the town, at times clashing with local fighters. Leaders hope the army will be able to enter Bani Walid peacefully, following an agreement brokered with locals allowing their arrival.

"The (army) force is ready to enter Bani Walid and we expect this force will enter peacefully," army chief of staff Yussef al-Mangoush told reporters. "The army is going to take control of the security situation."

There had been talk congress president Mohammed Magarief would also head to Bani Walid to facilitate the army's entry but a congress spokesman said the visit had been cancelled.

A spokesman for Bani Walid's fighters said the town was still being shelled, raising questions as to how the military would enter. "Shops are closed, there is shortage of food, fuel," Colonel Salem al-Wa'er said.

Tensions between Misrata and Bani Walid underscore the challenge Libya's new rulers face in reconciling groups with long-running grievances.

While Misrata spent weeks under siege by Gaddafi forces in last year's war, Bani Walid, 140 km (90 miles) away, was one of those that remained loyal to Gaddafi longest. The town of around 70,000 remains isolated from the rest of Libya and former rebels say it still harbours pockets of support for the old government.