Tanks of forces loyal to Libyan leader Muammar Gaddafi closed in on the rebel-held main square of Zawiyah on Wednesday and their snipers shot at anything that moved, rebel and resident sources said.

They said bodies were lying unrecovered in the ruins of many buildings destroyed in air raids earlier in the week and there was no one in the streets of the centre of the city of 290,000.

"We can see the tanks. The tanks are everywhere," a rebel fighter told Reuters by phone from inside Zawiyah, which lies 50 km (30 miles) west of the Libyan capital, Tripoli.

It was not possible to verify the reports independently.

Foreign reporters are not allowed anywhere near the city and attempts by some to enter Zawiyah over the past few days have been blocked by the authorities.

The fighter, named Ibrahim, said government forces were in control of the main road and the suburbs of Zawiyah, which in the past three days have become a focal point of a civil war on two fronts to end Gaddafi's 41-year-old rule.

Rebel forces still controlled Zawiyah's central square, and the enemy was about 1,500 metres (yards) away, Ibrahim said.

There were army snipers on top of most buildings, shooting anyone who dared to leave home.

A government spokesman in Tripoli said troops control most of Zawiyah, but there was still a small group of fighters.

"Maybe 30-40 people, hiding in the streets and in the cemetery. They are desperate," he said.

It appeared that Zawiyah, which briefly had been seen as a rebel stronghold in the uprising which erupted against Gaddafi last month, may now be on the verge of changing hands.

"The situation is not so good," a resident said by telephone. "No one can move outside their homes because they there are snipers everywhere."

Khaeri Aboshagor, spokesman for the London-based Libyan League for Human Rights, said the town might prove hard to control entirely.

"If they have taken the square, the resistance might diminish -- it's a symbolic place, and you could say whoever holds the square holds the town -- but they will keep fighting.

"It's a very spread out town and you can't just hold it with 50 tanks and some pickup trucks."

A Tunisian man who crossed the border on the way from Tripoli to Tunis in mid-afternoon said Zawiyah was encircled and the sound of explosions could be heard.

"The road was okay until we got close to Zawiyah. They've encircled the city and dug up the road leading to it so nobody can come in or out of Zawiyah," said Bachir al Tunesy.

Others fleeing to Tunisia were noticeably reluctant to speak to reporters about conditions. Some said they had been warned at army checkpoints that friends or relatives still in the country might suffer the consequences if they spoke out. Zawiyah fighter Ibrahim said Gaddafi forces "have surrounded the square with snipers and tanks" but rebels were holding on.

"It's very scary. There are a lot of snipers," he said.

"There are many dead people and they can't even bury them. Zawiyah is deserted. There's nobody on the streets. No animals, not even birds in the sky."

The heavy fighting has shut down one of Libya's biggest refineries supplying petrol to the country, which is located near the town, a refinery official said on Wednesday.

"Heavy weapons have been fired nearby and we can't run the refinery under these conditions," the official told Reuters.

Ibrahim said rebels had killed a high-ranking cousin of Gaddafi in fighting earlier in the week.

"That's why he bombed the city. They wanted to retrieve the body and they did."

He said a force of about 60 rebel fighters had left the city to attack an army base on Tuesday some 20 km (12 miles) away.

"None of them has returned and we don't know if they're dead or alive. We haven't heard from them," he said.