Six months into their revolt, the rebels appear to have pushed the war into a decisive phase in the last few days by seizing most of the city of Zawiyah on Tripoli's western outskirts, as well as a town south of the capital.

An increasingly confident rebel leadership dismissed reports that it was holding secret talks with representatives of the Libyan leader in neighbouring Tunisia.

After 41 years of supreme power in his oil-rich desert state 69-year-old Gaddafi is looking isolated, with reinvigorated rebel forces closing in on the capital from the west and south and cutting off its road links to the outside.

Gaddafi's forces have been fighting to retake Zawiyah, which controls the main highway into Tripoli from the west. Snipers are still on rooftops and the city has come under fire from rockets and mortars.

A reuters reporting team on Zawiyah's outskirts said it appeared quiet on Wednesday morning. Medical workers at a hospital there said three people had been killed and 35 injured on Tuesday, most of them civilians.

Libya's rebel National Transitional Council (NTC) denied negotiating with Gaddafi to resolve the six-month-old conflict. Sources have said the two sides were meeting in Tunisia this week where a U.N. envoy has also arrived for talks.

"The NTC would like to affirm that there are no negotiations either direct or indirect with the Gaddafi regime or with the special envoy of the United Nations," said NTC leader Mustafa Abdel Jalil.

Gaddafi must step down and leave Libya, he said. "It is unthinkable to hold any negotiations or talks that disregard this basic principle."

In Washington, U.S. Defense Secretary Leon Panetta said Gaddafi's forces had been thrown back onto the defensive, and reports that a senior figure in the Libyan security apparatus had defected indicated the regime was cracking.

"Gaddafi's forces are weakened and this latest defection is another example of how weak they've gotten," Panetta said. "I think the sense is that Gaddafi's days are numbered," Panetta said at event with Secretary of State Hillary Clinton.

At a news conference broadcast by Libyan state television, government spokesman Moussa Ibrahim dismissed reports that Gaddafi's forces were on the run but acknowledged fighting in several locations the rebels say they have already captured.

"Be aware of the media campaign which is trying to make the rebels bigger than they are," he told Libyan reporters. "Some foreign politicians have said this regime's days are finished and it has weeks left. They have been saying this for six months and we are still here."

The rebel strategy appears to be to isolate Tripoli and hope the government collapses. A worry is that Gaddafi will opt to stage a last-ditch fight for the capital, which could be bloody.

In a barely audible telephone broadcast by state television early on Monday, Gaddafi, speaking from an undisclosed location, urged followers to liberate Libya from rebels and NATO. "The blood of martyrs is fuel for the battle," he said.