The fighting came as the UN refugee agency made a plea for hundreds of planes to end a gridlock at the Tunisia border with revolt-hit Libya, where "acres of people" are still waiting to cross in freezing conditions.

Residents of Brega, 200 kilometres (125 miles) southwest of the main eastern city of Benghazi, said by telephone that Kadhafi's men had stormed the town with tanks and heavy artillery and that violent fighting had erupted at the port.

Libyan warplanes also launched airstrikes on Ajdabiya, 40 kilometres from Brega, targeting either an arms dump or a military base taken over by opposition forces, they said.

After the fighting in which witnesses said two people were killed, Kadhafi's forces withdrew, rebel leaders in the rebel-held town of Ajdabiya told AFP.

"Brega is now under the full control of the revolution," a police general in Ajdabiya said on condition of anonymity.

"People have gone from Ajdabiya to help," he said.

Mehdi Suleiman Hussein, a fighter from Ajdabiya, told AFP that "Kadhafi's forces arrived in Brega and fought, but now they are pulling back," adding however that some "mercenaries" were still battling the rebels.

UNHCR spokeswoman Sybella Wilkes told AFP in Geneva that the situation on the Libya-Tunisia border was dire.

"My colleague on the ground say that acres of people, as far as you can see, are waiting to cross," she said.

"They are outdoors in the freezing cold, under the rain, many of them have spent three or four nights outside already," said the spokeswoman.

More than 100,000 people have already left Libya to escape a vicious crackdown by Kadhafi loyalists which has left at least 1,000 dead, according to conservative UN estimates.

The USS Kearsarge and the USS Ponce carrying marines and equipment entered the Suez Canal early Wednesday, an Egyptian canal authority official said. The warships are expected to enter the Mediterranean by evening.

The Kearsarge amphibious ready group, with about 800 marines, a fleet of helicopters and medical facilities, could support humanitarian efforts as well as military operations.

"We're certainly moving assets to be closer (to Libya)," a US defence official told AFP in Washington on Tuesday. "A ship like the Kearsage is capable of many types of missions."

Western powers are arguing over imposing a proposed no-fly zone over Libya to support rebels fighting Kadhafi's regime. Some opposition figures in Libya have begun calling for air strikes.

Anger at authoritarian Arab regimes in the Middle East and North Africa raged from Algeria to Yemen and has spread to the previously unaffected Gulf states of Kuwait and Oman, unnerving financial markets around the world.

New York crude prices again breached $100 a barrel in Asian trade Wednesday and Wall Street shares slumped, after Federal Reserve chief Ben Bernanke warned that high oil prices could spark inflation and hamper economic recovery.

Huge crowds poured into the centre of Yemen's capital Sanaa on Tuesday to protest at President Ali Abdullah, in power since 1978.

Saleh dismissed the demonstrations across the Middle East as "a storm orchestrated from Tel Aviv and under Washington's supervision".

Diplomatic manoeuvring on Libya stepped up with the United Nations on Tuesday suspending the oil-rich state from its main human rights body, but the UN Security Council is split on the crisis.

British Prime Minister David Cameron, a leading advocate of the no-fly option, said it was unacceptable for Kadhafi to "be murdering his own people, using aeroplanes and helicopter gunships and the like".

London said a no-fly zone did not necessarily require UN approval, but new French Foreign Minister Alain Juppe ruled out military action without a clear UN mandate, and Russia appears sceptical.

Although Kadhafi's military is badly outgunned by US and NATO aircraft, the regime has dozens of surface-to-air missiles that could target invading warplanes.

"We also have to think about frankly the use of the US military in another country in the Middle East," US Defence Secretary Robert Gates said.

Wednesday's counterattack was one of the biggest yet since the uprising against Kadhafi's rule erupted on February 15.

Anti-Kadhafi forces have seized most of the east of the country since the uprising began and have taken tentative steps towards setting up a parallel government, while watching warily for a fightback.

Kadhafi remains entrenched the capital Tripoli in the west of the oil-rich North African country.

Rebels in Benghazi said they had formed a military council in the eastern Libyan city, the hotbed of the uprising against Kadhafi's four-decade iron rule.

The council will liaise with similar groups in other eastern cities, the rebels said, but it was not immediately clear if there were plans for a regional command.

Salwa Bughaighi, a member of the coalition trying to run Benghazi, said they would seek a no-fly zone to prevent Kadhafi from reinforcing his strongholds in Tripoli and Sirte.

Other people privy to rebel discussions in Benghazi said they were losing hope that the popular uprising could topple Kadhafi and were inclined to ask for foreign air strikes, perhaps under a UN mandate, on strategic targets.

But as local councils wrestle with how to get public services running, many protesters fear their disorganised forces will be outgunned by Kadhafi's militias if they try to strike out to the west from their eastern stronghold.

On Monday, pro-Kadhafi militiamen were repulsed after attempting to retake Zawiyah, a middle-class dormitory town just 60 kilometres (40 miles) west of Tripoli where several of the leader's lieutenants have homes, residents said.

But rebels in Zintan, 145 kilometres (90 miles) southwest of Tripoli, were bracing for an assault by Kadhafi forces to retake the city, the first in western Libya to throw off his rule.

burs/bpz

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