At least four people died in Bani Walid as Gaddafi loyalists continue to fight the Libyan government forces.
Despite the fall and death of former Libyan leader Muammar Gaddafi last year in August, forces loyal to him are still fighting the National Transitional Council (NTC) forces in the deserts south-east of Tripoli.
About 30 pro-government forces have been injured and reports suggest that pro-Gaddafi loyalists have now seized Bani Walid, a long-time stronghold of the slain leader's supporters.
"There are around 100 to 150 men armed with heavy weapons who are attacking," Mahmud Warfelli, spokesman of Bani Walid local council, told AFP news agency.
"We have asked for the army to intervene, but the defence ministry and NTC have let us down," he added.
The claims were denied by NTC officials with the Libyan Interior Minister Fawzi Abdelali blaming the violence on "internal problems" rather than on Gaddafi loyalists.
"The information we have from inside the city does not say that there are green flags [a symbol of the former regime] and there is nothing in relation to the former regime," Abdelali said on Libyan TV, AFP reports.
Since the fall of the Gaddafi regime and despite the NTC taking power, rival militias have been fighting across the country.
Following the revolution and months of fighting between pro-Gaddafi forces and NTC rebels, Libya was left awash with weapons, prompting fears the country could slide into civil war.
Several weapons collected by civilians and armed groups during the conflict also brought about fears armaments could be used to fuel regional conflicts or be recuperated by terrorists organisations or other armed militias.