NATO countries, which had hoped Gaddafi's ouster from Tripoli a month ago would mean they could soon bring an end to their costly six-month bombing campaign in aid of anti-Gaddafi fighters, voted to extend the operation for three more months.
The remote desert outpost of Sabha had been holding out along with Bani Walid southeast of Tripoli and Gaddafi's hometown Sirte since the fall of the capital.
"We control most of Sabha apart from the al-Manshiya district. This is still resisting, but it will fall," ruling National Transitional Council (NTC) military spokesman Ahmed Bani told Reuters.
CNN, citing a correspondent in Sabha, reported that NTC fighters had occupied the centre of the desert outpost on Wednesday after taking the airport and a fort the day before.
It was not immediately clear whether fighters would be able to hold their gains. Throughout seven months of fighting, advances have often been quickly reversed.
Despite the apparent success at Sabha, chaos prevailed among fighters besieging Gaddafi's other two hold-out towns. Several attempts by NTC fighters to overrun Bani Walid and Sirte in the past week have ended in disarray and panicked retreat.
At Bani Walid, bored militiamen fired weapons at camels and sheep while awaiting orders on Wednesday, as much a danger to themselves as to Gaddafi fighters holed up in the town.
One man shot his own head off and killed another fighter while handling a rocket-propelled grenade in full view of a Reuters team. In another incident, a fighter lost control of his machinegun and sprayed himself and another fighter with bullets, seriously wounding both of them.
Fighting at Bani Walid has been chaotic and scattershot with different brigades arguing among themselves, fighters from other areas not getting along with local fighters, and talk of traitors infiltrating the ranks and sabotaging the assault.
Outside Sirte on Wednesday, NTC forces came under fire from Gaddafi loyalists on fronts east and west of the city.
Fighting on the west of the town was sporadic. East of the city, an NTC advance has been held back for days by Gaddafi loyalists. Reuters reporters travelling with the column said it came under sustained and heavy rocket fire on Wednesday.
Fighters making their way back from the front line said they were meeting fierce resistance at Khamseen, 50 km (30 miles) east of Sirte and were unable to respond because they lacked the firepower. Others said the ferocity of the fighting from the Gaddafi loyalists had shocked them.
"I'm 100 percent sure that there is someone important in Sirte, either Gaddafi himself or one of his sons, because his forces have become suicidal in the Khamseen area," NTC fighter Hamed al-Hachy, told Reuters. "And they are trying to buy him time until he's able to flee Libya."
NEW CABINET
Efforts to take control of all of Libya's territory are taking place alongside attempts to appoint an interim cabinet, though that has also proven more difficult than expected.
A plan to announce a new interim government this week collapsed after members of the current council failed to agree.
The NTC has its roots in the eastern city of Benghazi, although most of the fighters who captured Tripoli last month come from the west. The NTC says it aims to create a new interim administration that is more inclusive.
Libya will now probably name a new government within 10 days, interim Prime Minister Mahmoud Jibril said in New York on Wednesday, where he is attending the U.N. General Assembly.
Libya's de facto rulers won expressions of support from Washington, the African Union and South Africa on Tuesday and its new green, red and black flag flew for the first time at the United Nations.
"I expect the government to be announced in the next week to 10 days maximum," Jibril said after a G8 conference on aiding Arab countries' transition to democracy. The conference is taking place on the sidelines of the general assembly.
"I'm not bothered by the time consumed to bring about a national consensus," he said.
Among issues the interim leaders were debating were the number of ministries in the new government and whether they would be in Tripoli or divided between eastern and western Libya, Jibril said.
International leaders at the U.N. conference congratulated Libyans -- and themselves -- for Gaddafi's removal by NATO-backed rebels in a seven-month conflict. U.S. President Barack Obama called for the last of Gaddafi's loyalists to stop fighting and said the U.S. ambassador would return to Tripoli.
"Those still holding out must understand -- the old regime is over, and it is time to lay down your arms and join the new Libya," Obama said.
NATO, which took command of a military mission on March 31 under a U.N. mandate to protect Libyan civilians, agreed at a meeting of ambassadors of its 28 member states in Brussels to extend the mission for three more months, a NATO diplomat said.
Gaddafi, who is on the run, taunted the Western alliance in a speech broadcast by a Syrian-based television station on Tuesday, saying: "The bombs of NATO planes will not last."
Just hours after he spoke, Britain said its jets had struck again, attacking troops loyal to him in three different areas and destroying Gaddafi bases in both Sirte and Bani Walid.
A security source in neighbouring Tunisia said Tunisia's army clashed with armed men in several cars near the border. The source did not identify the gunmen. The border has occasionally been tense and armed Libyans clashed with Tunisian troops last month in the final days before the fall of Tripoli.
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