Libyan rebels have advanced into two strategic towns controlling access to the capital, Tripoli, from the west and the south.
Fighting was reported in both Zawiya, just 50km (30 miles) west of Tripoli, and Gharyan, 80km to the south.
If the towns fall to the rebels, they would have Tripoli surrounded by land, with Nato blocking sea access.
In comments broadcast on Libyan TV, Col Muammar Gaddafi called on supporters "to get ready for the fight".
A spokesman for his government said both Zawiya and Gharyan remained "under our full control".
Col Gaddafi's short speech was his first public address since the rebels launched their offensive around Tripoli.
"Move forward, challenge, pick up your weapons, go to the fight for liberating Libya inch by inch from the traitors and from Nato," he said, in a statement in poor-quality audio early on Monday, described as live by Libyan TV.
The BBC's Matthew Price in Tripoli says social networking sites have been reporting that the government and opposition are in talks to get Col Gaddafi out of the country.
There were also reports, carried by the Reuters news agency, of a meeting between Col Gaddafi's representatives and rebels on the Tunisian island of Djerba.
However, our correspondent says the government has dismissed the suggestions out of hand, along with a report that two South African planes had landed at Tripoli airport to take the leader into exile.
Decisive moment
Fighting in towns around Tripoli was continuing on Monday.
A spokesman for the rebels, Abdulsalam Othman, told Agence France-Presse news agency that rebels had "full control" of the road between the coastal cities of Sorman and Zawiya.
Fighting was continuing inside Zawiya, he said, although the entrance gates to Gharyan and Sorman were under rebel control.
Mr Othman said there was still an "unknown number" of Gaddafi forces inside Gharyan and Sorman.
The rebels said pro-Gaddafi gunmen were sited on high buildings shooting at them.
Zawiya controls the main road west from Tripoli to the Tunisia - a key supply route for Col Gaddafi's forces.
Zawiya's oil refinery - the only one in western Libya - also supplies his forces with most of their fuel.
Our correspondent says Col Gaddafi's forces can be expected to fight tooth-and-nail for both assets.
Zawiya's loss would prove a decisive moment in the conflict, giving the rebels the upper hand, he says.
The city was briefly held by rebel forces early in the uprising against Col Gaddafi's rule this year but they were driven out by tanks and suffered heavy casualties.
Last week, hundreds of rebels pushed out of the Nafusa Mountains in the west, down towards the towns of the coastal plain in an offensive aimed at ending months of deadlock.
Military success in the west is crucial to the rebels, who have struggled to make advance from their stronghold around Benghazi in the east.
