Forces loyal to Libyan leader Moammar Gaddafi entered the suburbs of the rebel-held city of Benghazi Saturday in defiance of a United Nations resolution, Al-Jazeera television reported.
However, the rebels were fighting back and a warplane flying overhead was shot down.
An Associated Press reporter saw the plane go down in flames outside the city after the area came under shelling. A black cloud went up over the city's southern outskirts.
Al-Jazeera said government forces had entered the city's western suburbs, as NATO met to discuss how to enforce a United Nations resolution authorizing military action to protect civilians.
French and British warplane are expected to take the lead in military action, which could happen within hours.
On Friday, U.S. President Barack Obama listed a string of demands including that Gadhafi stop his forces from advancing on Benghazi.
Libya had declared a unilateral ceasefire Friday after the United Nations Security Council authorised a no-fly zone over Libya, but the United States said the ceasefire was not being respected.
A Libyan government spokesman said Saturday that its forces were not involved in military action in or around Benghazi, contradicting reports by Al-Jazeera and Sky News correspondents in the city.
"There are no attacks whatesover on Benghazi. As we said, we are observing the ceasefire and we want international observers to come," Mussa Ibrahim, the spokesman, told Reuters.
"There are rebels attacking villages and towns trying to instigate outside military interverntion," he added.
Skirmishes in city
Earlier, rebels had reported skirmishes and airstrikes in Benghazi by Gadhafi forces.
"Fighter jets bombed the road to the airport and there's been an air strike on the Abu Hadi district on the outskirts," Mohammed Dwo, a hospital worker and a rebel supporter, told Reuters.
He was speaking at the scene of an apparent firefight between rebels and what they claimed were two mercenaries who had infiltrated the city and were driving in a car which they said contained a crate of handgrenades.
The two men, in civilian clothes, had been shot and killed and rebels produced blood-soaked identity papers they said showed them to be of Nigerian nationality.
"We were sitting here and we received gunfire from this vehicle then we opened fire and after that it crashed," rebel fighter Meri Dersi said.
Jamal bin Nour, a member of a neighbourhood watch group, told Reuters he had received a call to say government forces were landing by boat, but it was impossible to confirm the information.
"Gadhafi's forces are bombing the city with artillery shells and tanks. We now have 25 people dead at the hospital, including several little girls," Dr. Khaled Abou Selha told Reuters by satellite phone.
"They are even bombing ambulances. I saw one little girl with half of her head blown off," he said, crying.
The doctor and another resident, who identified himself as Mohamed, said the city was still being heavily shelled.
"There are 20 tanks in the city, they are killing everybody because they want to recapture the city by this evening," Mohamed said. The sound of heavy artillery could be heard in the background.
The city has been so rife with rumours and hearsay that it is virtually impossible to verify due to lack of communications.
Tanks were also closing in on the center of Misrata, about 130 miles east of Tripoli.
"It's the heaviest bombardment I have seen so far. We believe they (Gadhafi's forces) want to enter the city at any cost before the international community starts implementing the U.N. resolution," said Saadoun, a rebel fighter.
"On behalf of all the people of Misrata, the women, the children and the elderly, we call on the international community to do something before it's too late. They must act now," he said. "They already failed us before and were late in taking a decision, they should not repeat the same mistake."
Gadhafi's forces have repeatedly attacked Misrata in the past two weeks. Water supplies have been cut off, there are frequent power cuts and communications are very difficult, residents said.
There were also reports of fighting further west, near the border with Tunisia. Rebels in the town of Nalut said they attacked government positions close to the border on Friday morning, and that four government soldiers and one insurgent were killed in the fighting.
"We have to be very cautious. He is now starting to be afraid, but on the ground the threat has not changed," a French spokesman said. Britain, like France a strong advocate of armed action, said it would judge Gadhafi by "actions, not his words".
NATO allies discuss action
Meanwhile in Brussels, NATO allies were meeting to draw up plans to enforce a United Nations resolution authorizing military action to prevent the killing of Libyan civilians.
Obama and other Western leaders have said the military response would be swift if Gadhafi forces continued attacking protesters trying to end his 42-year rule.
Explosions and anti-aircraft fire were reported also late Friday in Benghazi, but Libyan officials have insisted the government troops were not violating the U.N. resolution.
A U.S. national security official, who spoke on condition of anonymity, said Libyan troops were advancing on Benghazi. He called the movements "purposeful," based on official reporting reaching U.S. national security agencies in Washington.
Another official told NBC news that what the Libyans declared was not a genuine cease-fire.
Gadhafi said there was no justification for the U.N. resolution, Al Jazeera.
"This is blatant colonialism," Gadhafi said. "It does not have any justification. This will have serious consequences on the Mediterranean and on Europe. In 2011 they are colonizing us, massacring us, and imposing one no-fly zone after the other and one military attack after another. What is this racism? What is this hatred?"
Libyan Deputy Foreign Minister Khaled Kaim told reporters the presence of Libyan government forces around Benghazi did not violate cease-fire rules and the army had no plans to attack the eastern rebel stronghold.
Libya has asked China, Malta, Turkey and Germany to monitor "a real cease-fire on the ground," Kaim said.
Germany rejected the suggestion, saying the U.N. should send observers.
Earlier, the United States, Britain and France — backed by unspecified Arab countries — said a cease-fire must begin "immediately" in Libya, the French presidential palace said.
The statement called on Gadhafi to end his troops' advance toward Benghazi and pull them out of Misrata, Adjadbiya and Zawiya.
It also called for the restoration of water, electricity and gas services in all areas. It said Libya's population must be able to receive humanitarian aid.
"This is not negotiable," the statement said.
The statement echoed an earlier warning Friday by Obama, who said that if the Libyan leader did not stand down the United States would join in military action against him.
"All attacks against all civilians must stop," Obama said.
"These terms are not subject to negotiation. If Gadhafi does not comply with the resolution, the international community will impose consequences," he added.
Obama said the United States would not deploy ground troops in Libya or use force beyond protecting people.
The U.S. ambassador to the U.N., Susan Rice, said Gadhafi will face "swift and sure consequences including military action" if he ignores demands for a cease-fire.
Al Arabiya quoted one of Gadhafi's sons as saying Libya was not afraid of the U.N.'s no-fly zone resolution. Al Arabiya did not say where or when Saif al-Islam made the remark.
Libya also closed its air space to all traffic Friday, European air traffic control organization Eurocontrol said. Eurocontrol said it had received information from Malta that Tripoli air traffic control had put out a notice saying it was not accepting any aircraft into Libyan airspace "until further notice."
Britain and France took the lead in plans to enforce a no-fly zone over Libya on Friday, sending British warplanes to the Mediterranean and announcing the Saturday crisis summit in Paris with the U.N. and Arab allies.
In Brussels, NATO envoys were considering ways to enforce the U.N. resolution. Aircraft flying from NATO bases in Sigonella, Sicily, Aviano in northern Italy, and a U.S. carrier in the Mediterranean could enforce the no-fly zone.
French and British planes could be sent to fly over Libya before Paris talks as a political message to Gadhafi, a French diplomatic source told Reuters.
"The idea is not to strike Libya, but to send a political message," the source said.
British Prime Minister David Cameron, one of the most enthusiastic backers of a no-fly zone, said Britain would send Typhoon and Tornado fighter jets to air bases "in the coming hours" so they would be in position to stop Gadhafi's forces mounting air strikes against Benghazi-based rebels.
"The clock is ticking and we must be ready to act quickly," Cameron said, adding that Gadhafi must prove he was serious about a cease-fire to avoid military strikes.
Denmark and Canada said they would supply fighter jets for the mission. Italy and Spain said they would make their air bases available.
Diplomats have said Arab countries likely to participate in possible strikes include Saudi Arabia, Qatar, the United Arab Emirates and Jordan.
NATO surveillance AWACS planes flying off the Libyan coast are already providing 24-hour coverage of the situation in the air and on the battlefields.