"They entered Zawiya at six in the morning with heavy forces, hundreds of soldiers with tanks. Our people fought back ... We have won for now and civilians are gathering in the square," said Youssef Shagan, the rebel force spokesman in Zawiyah.
"We captured 3 APCs, two tanks and one pick-up after an hour and a half of fighting. A lot of civilians fled when the fighting started," he said, adding that there were government snipers in the town.
The Reuters journalist said "Zawiya is encircled by Gaddafi's forces, there are a lot of checkpoints. They are tightening their grip on the center. Access to central Zawiya is completely blocked," she said.
Earlier reports said Gaddafi's forces had reasserted broad control of the Mediterranean coastal town, 50 km (30 miles) west of the capital Tripoli but had run into rebel resistance in a central square.
A rebel fighter in central Zawiya told Reuters by phone that Gaddafi's forces were re-grouping at the entrance of the town after being pushed back on Saturday morning.
"Gaddafi will never enter this city. He will never set foot here. The only way for him to enter the city is when we are all dead. He has to kill us all to control the city," said the rebel, who gave his name as Ibrahim.
He said there were casualties on both sides but could not give a precise number.
Witnesses said earlier that Gaddafi's forces on Saturday broke through rebel lines after overcoming rebel positions with heavy mortar shelling and machinegun fire. They said the shelling damaged government buildings and homes.
Mosques announce 'jihad'
The forces fired from tanks at residential areas, Arabic satellite channels reported. "Now with all the artillery, tanks and armored vehicles, we're seeing battles and killings we haven't seen in Iraq. I consider it total genocide," said one witness who spoke to Al-Arabiya television.
"The battles have now entered the city. More than 15 armored vehicles entered two hours ago along with a tank. There is heavy firing in all the areas and mosques have announced 'jihad' against these brigades," the man told Al-Arabiya.
The hours-long attack started at dawn and the rattle of gunfire and explosions could be heard as the witnesses spoke to The Associated Press by phone. They spoke on condition of anonymity, fearing for their own safety.
They said several fires were raging in Zawiya and that heavy black smoke hung over many parts of the city of some 200,000 people. They said snipers were shooting on sight anyone on the streets or residents who venture out on their homes' balconies.
Reuters and The Associated Press and contributed to this report
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